Allocating Capacity for Export-Oriented Apparel Production in a Developing Country Using Multi-Item Newsboy Problem

Abstract

The purpose of this paper is to develop an efficient method to allocate capacity for export-oriented production of apparels using multi-item newsboy problem in developing countries. Export oriented apparel production in developing countries is fully make-to-order. In this article we describe a method that prescribes three-way solutions depending on the firm’s own capacity. Leasing out of capacity is applied when the firm’s capacity is higher than that required for production demand. In an opposite situation, the firm subcontracts or employs overtime to meet the production requirement. In case of unavailability of subcontract production the firm has to adjust its production order with available capacity. Three factors to represent the probability of leasing, overtime and subcontracting have been used in the model. This helps the decision maker to analyze favorable or worse situation planning. Some previously developed heuristics have been modified to solve the constrained problem. A numerical example illustrates the validity of the model and shows that one of the heuristics performs better than all the previous when the resource is scarcer.