Production Decisions for Standard and Customized Products with Postponement

Abstract

In this study, we analyze the optimal production decisions for standard and customized products. The manufacturer produces standard products in a make-to-stock fashion and customized products with a postponement strategy. Due to the high production cost of customized products with a postponement strategy, the manufacturer may not benefit from postponement in some cases. We investigate the condition in which producing customized products with postponement is beneficial for the manufacturer. Numerical examples reveal that it is more beneficial to produce customized products with postponement when the cost of preparing general components is relatively small (where the total cost of producing customized products keeps constant) and demand uncertainty is relatively high.