Simulation study of impact of capacity reservation threshold on order fulfilment

Given the high prices of machine tools, customers often engage in careful deliberation before placing any orders for machines. The number and size of orders may suddenly change when the demand unexpectedly increases or plummets. This paper proposes the concept of “reservation threshold”, which refers to mitigating possible crowding-out by applying advanced capacity for handling potential orders. This threshold also serves as an order entrance control to reduce the number of non-confirmed orders. A simulation model is used to explore the impact of various threshold values on production system profitability. Data abstracted from a representative company are used as a case study. Scenarios for three reservation strategies are examined for negotiation probability distributions. Through numerical experiments, the significance of an appropriate reservation threshold is demonstrated for normal capacity scenarios; the reservation strategy outperforms the no-reservation strategy under conditions of normal and insufficient capacity while the module reservation strategy is the best of the three reservation strategies.