Revenue management for a make-to-order company with limited inventory capacity

Abstract

We consider the application of revenue management to a make-to-order manufacturing company with limited inventory capacity. Orders with different profit margins arrive stochastically over an infinite time horizon and the company has to decide which orders to accept and which orders to reject. We model the problem with a discrete-time Markov decision process and propose a heuristic procedure. In numerical tests we show the potential benefit of using revenue management instead of a FCFS policy and assess the performance of the heuristic procedure.