This paper focuses on the production and assembly control in a two-stage assemble-to-order (ATO) manufacturing system. An ATO manufacturing system keeps inventory only at the component level, and products are assembled only after a customer order is received. ATO systems have a widespread use in various industries where mass customization is popular. The motivation of the problem is due to the need for firms in this setting to effectively coordinate the production of components and allocate the assembly line capacity shared across many different products. We model component production lines and a downstream product assembly line with M/M/1 queues in order to identify optimal policies regarding a firm’s decision on how many components of each type to produce and how to prioritize orders for various products. We also propose an effective heuristic solution that is robust with respect to the number of product alternatives offered.

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