Combined make-to-order/make-to-stock supply chains

Abstract

A multi-item manufacturer served by a single supplier in a stochastic environment is considered. The manufacturer and the supplier have to decide which items to produce to stock and which to produce to order. The manufacturer also has to quote due dates to arriving customers for make-to-order products. The manufacturer is penalized for long lead times, missing the quoted lead times and high inventory levels. Several variations of this problem are considered and effective heuristics for the make-to-order/make-to stock decision are designed to find the appropriate inventory levels for make-to-stock items. Scheduling and lead time quotation algorithms for centralized and decentralized versions of the model are also developed. Extensive computational testing is performed to assess the effectiveness of the proposed algorithms, and the centralized and decentralized models are compared in order to quantify the value of centralized control in this supply chain. As centralized control is not always practical or cost-effective, the value of limited information exchange for this system is explored. [Supplementary materials are available for this article. Go to the publisher's online edition of IIE Transactions for the following free supplemental resource(s): Online appendix including additional computational analysis and proofs.].