Faculty of Business Administration
Decision Sciences

Make-to-Stock or Make-to-Order?

Optimal Policies for Supply Strategies under Uncertainties

Dr. Stuart Xiang Zhu
Assistant Professor, Department of Operations
Faculty of Economics and Business
The University of Groningen, The Netherlands


We consider a single-stage firm, facing the choice of make-to-stock (MTS) and make-to-order (MTO) supply strategy. For a benchmark system with a Poisson demand process and exponential processing times, we prove that a utilization-threshold policy is optimal; i.e., if the utilization is above the threshold, the MTS strategy is optimal, and otherwise, the MTO strategy is optimal. When the demand process is not Poisson, the optimal policy is more involved but is still a threshold type, but the threshold depends on both the arrival variability and utilization. When the service time becomes general, the optimal policy is affected by supply variability, utilization, the waiting-time distribution, and cost parameters. Further, analytical and numerical results show that when demand uncertainty is high, the firm should follow the MTO strategy to be responsive to market while when the supply uncertainty is high, the firm should follow the MTS strategy to hedge the risk of breakdown and supply disruption.

Date: March 13, 2015 (Friday)

Time: 15:00~16:30

Venue: Faculty of Business Administration, E22-1008

A Short Biography of Dr. Zhu
Dr. Stuart Xiang Zhu serves as Assistant Professor, Department of Operations, Faculty of Economics and Business, The University of Groningen, The Netherlands. Before joining The University of Groningen, Prof. Zhu was the Visiting Assistant Professor at Department of Industrial Engineering and Logistics Management, School of Engineering, The Hong Kong University of Science and Technology. His research interests include Sustainable Supply Chain Management, Production Planning and Inventory Control, Capacity Management, Game Theory Applications. He got his B.Eng. in Control Engineering at The Huazhong University of Science and Technology and Ph.D. in Industrial Engineering and Engineering Management at The Hong Kong University of Science and Technology.