Optimal Order Policies in a Custom-made Product Supply Chain with Substitution and Market Signal

This paper analyzes a single period review supply chain model. Two kinds of production process, mass customization and the traditional production, are adopted simultaneously. Downward substitution and forecast updating are introduced to reduce demand uncertainty. The decision process can be divided into three stages, where the first and second stage are ordering decision and the third stage is allocation decision. We make the problem to be a stochastic programming and change it to be a stochastic linear programming. Using stochastic stimulation, we get the optimal order policy to maximize the total system profits. We show the effect of substitution and updating though numerical example. Comparing four different cases, we find the effectiveness is largest when substitution and updating are used simultaneously.