Component Allocation in Make-to-stock Assembly Systems

This paper compares the performance of different component allocation rules in MTS (make-to-stock) assembly systems. The component allocation problem has to be solved if actual component stocks do not cover the deviations between the secondary demand forecast and the actual component demand. This problem has high relevance for practice and is routinely solved in ERP (enterprise resource planning) systems. The available algorithms for solving this problem often apply the FCFS (first-come-first-served) rule. However, it is not known how FCFS performs compared to other rules. This paper provides new insights into this. We consider an alternative assumption on inventory reservation (FRFS: this with different prioritization rules, which are applied if orders for multiple finished products are in a backlog or occur in the same period. We show that the dominance of FRFS over FCFS in a well-researched ATO (assemble-to-order) setting does not extend to MTS systems. Our numerical results suggest that choosing a proper allocation rule can offer significant benefits. The most effective rule is FRFS with the minimization of expected finished item backorder costs. This rule can realize average savings in inventory holding and backorder costs of 8.2% compared to standard FCFS, where the earliest created orders have the highest priority. The savings increase markedly with tight capacities; the effects of lot sizes are minor. © 2021, The Author(s), under exclusive licence to Springer Nature Switzerland AG.