Abstract: Motivated by the practice of an ATO manufacturer, a single-period ATO system with subassembly and uncertain future demand is considered.To cope with the challenges of long component procurement lead times and limited assembly capacity, the manufacturer may need to procure components,and assemble some quantities of subassembly or the final product before the actual order quantity is confirmed.Since there is subassembly in the product BOM as an intermediate production, the assembly capacity is variable with respect to assembly with components or subassembly over different time slots.A profit maximization model to analyze the optimal inventory and production decisions under the above ATO environment is presented.Structural properties of optimal solutions is estabilished and efficient solution procedures for the proposed problem is developed.

Key words: assemble-to-order system, variable capacity, uncertain demand, assemble-in-advance