Service Level Based Capacity Rationing Procedure for Make-To-Order Manufacturing Systems

We extend a heuristic method within the framework of “dynamic capacity apportionment procedure” (DCAP) to allocate an existing capacity among the classes with different profit contributions. In general, DCAP is applied when some capacity shortage exists and can not be enhanced in short - run. Our proposed approach is constructed for a make - to - order manufacturing system that produces a variety of products while experiences a burst of demand in excess of capacity. Although, a higher level of profit can be gained  by accepting more orders from higher priority classes at the expense of rejecting some or all of orders of lower priority classes, it may result in elimination of an existing market segment. To avoid this case, which practitioners are very much concerned about it, we propose an approach by maintaining a desired minimum service level for each product class. This method of rationing policy maximizes the expected profit by discriminating product classes while meeting the individual product service level targets set by the management. We also highlight the managerial implications of such a result and identify possible avenues for further research.