### Abstract

In this paper, we consider an assembly system where a firm faces random demand for a finished product which is assembled using two critical components. The components are procured from the suppliers who, due to production yield losses, deliver a random fraction of the order quantity. We formulate the exact cost function where the decision variables are the target level of finished products to assemble, and the order quantity of the components from the suppliers. Since the exact cost function is analytically complex to solve, we introduce a modified cost function and derive bounds on the difference in the objective function values. Using the modified cost function, we determine the combined component ordering and production (assembly) decisions for the firm. The benefit of coordinating ordering and assembly decisions is numerically demonstrated by comparing the results with two heuristic policies commonly used in practice. In an extension to the model, we consider the case when the firm has the added option of ordering both the components in a set from a joint supplier. First, we consider the case when the joint supplier is reliable in delivery and obtain dominance conditions on the suppliers to be chosen. The maximum price a firm would be willing to pay to ensure reliable supply of components is determined. Later, we consider the uncertainty in the deliveries from the joint supplier and determine conditions under which there is no diversification, that is, either the individual suppliers are used, or the joint supplier is used, but never both.

Original language | English (US) |
---|---|

Pages (from-to) | 701-714 |

Number of pages | 14 |

Journal | IIE Transactions (Institute of Industrial Engineers) |

Volume | 32 |

Issue number | 8 |

State | Published - Aug 2000 |

Externally published | Yes |

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### ASJC Scopus subject areas

- Management Science and Operations Research
- Industrial and Manufacturing Engineering

### Cite this

*IIE Transactions (Institute of Industrial Engineers)*,

*32*(8), 701-714.

**Supply management in assembly systems with random yield and random demand.** / Gurnani, Haresh; Akella, Ram; Lehoczky, John.

Research output: Contribution to journal › Article

*IIE Transactions (Institute of Industrial Engineers)*, vol. 32, no. 8, pp. 701-714.

}

TY - JOUR

T1 - Supply management in assembly systems with random yield and random demand

AU - Gurnani, Haresh

AU - Akella, Ram

AU - Lehoczky, John

PY - 2000/8

Y1 - 2000/8

N2 - In this paper, we consider an assembly system where a firm faces random demand for a finished product which is assembled using two critical components. The components are procured from the suppliers who, due to production yield losses, deliver a random fraction of the order quantity. We formulate the exact cost function where the decision variables are the target level of finished products to assemble, and the order quantity of the components from the suppliers. Since the exact cost function is analytically complex to solve, we introduce a modified cost function and derive bounds on the difference in the objective function values. Using the modified cost function, we determine the combined component ordering and production (assembly) decisions for the firm. The benefit of coordinating ordering and assembly decisions is numerically demonstrated by comparing the results with two heuristic policies commonly used in practice. In an extension to the model, we consider the case when the firm has the added option of ordering both the components in a set from a joint supplier. First, we consider the case when the joint supplier is reliable in delivery and obtain dominance conditions on the suppliers to be chosen. The maximum price a firm would be willing to pay to ensure reliable supply of components is determined. Later, we consider the uncertainty in the deliveries from the joint supplier and determine conditions under which there is no diversification, that is, either the individual suppliers are used, or the joint supplier is used, but never both.

AB - In this paper, we consider an assembly system where a firm faces random demand for a finished product which is assembled using two critical components. The components are procured from the suppliers who, due to production yield losses, deliver a random fraction of the order quantity. We formulate the exact cost function where the decision variables are the target level of finished products to assemble, and the order quantity of the components from the suppliers. Since the exact cost function is analytically complex to solve, we introduce a modified cost function and derive bounds on the difference in the objective function values. Using the modified cost function, we determine the combined component ordering and production (assembly) decisions for the firm. The benefit of coordinating ordering and assembly decisions is numerically demonstrated by comparing the results with two heuristic policies commonly used in practice. In an extension to the model, we consider the case when the firm has the added option of ordering both the components in a set from a joint supplier. First, we consider the case when the joint supplier is reliable in delivery and obtain dominance conditions on the suppliers to be chosen. The maximum price a firm would be willing to pay to ensure reliable supply of components is determined. Later, we consider the uncertainty in the deliveries from the joint supplier and determine conditions under which there is no diversification, that is, either the individual suppliers are used, or the joint supplier is used, but never both.

UR - http://www.scopus.com/inward/record.url?scp=3042545957&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=3042545957&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:3042545957

VL - 32

SP - 701

EP - 714

JO - IISE Transactions

JF - IISE Transactions

SN - 2472-5854

IS - 8

ER -