Seminar by Emre Nadar

Emre Nadar

A Novel Optimal Policy Structure for Managing Inventory in Assemble-to-Order Systems

Seminar by
Emre Nadar
Information Systems Technology and Design



Assemble-to-order (ATO) systems are popular in many industries including, but not limited to, automotive, consumer electronics, and online retailing, where offering customized products and services within a short response window plays a vital role. Although popular in practice, characterizing optimal control policies for ATO systems has remained a longstanding challenge in the field of Operations Management. This talk will present our progress towards solving this important and difficult problem.


In the first part, we address the problem of inventory replenishment and allocation for a manufacturer who sells an assembled product as well as individual spare parts. We model the problem as a Markov decision process, with state space consisting of component inventory levels. By partitioning the state space into multiple disjoint lattices based on products’ component requirements, we establish the optimality of base-stock production and stock rationing policies on each lattice. Our computational results reveal the practicality of such lattice-dependent base-stock and rationing policies for ATO systems with general product structures.

In the second part, we present an approximate dynamic programming method to the general ATO problem, under Markovian assumptions on production and demand. We approximate the optimal cost function by reducing the state space of the original problem via a novel aggregation technique, which may significantly alleviate the computational burden. We show the optimality of lattice-dependent base-stock and rationing policies for the aggregate problem. We also derive error bounds for this approximation and provide computational results. We conclude with a discussion of future research directions in this field.

Parts of this research are joint work with Alp Akcay from Bilkent University, Mustafa Akan and Alan Scheller-Wolf from the Tepper School of Business, Carnegie Mellon University.

Short Bio: Emre Nadar is an assistant professor in the Department of Industrial Engineering at Bilkent University. He received his B.S. degree in Industrial Engineering from Bilkent University, and his M.S. and Ph.D. degrees in Operations Management from the Tepper School of Business, Carnegie Mellon University. His research interests include stochastic dynamic programming, queueing theory, supply chain management, and sustainable operations.

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