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The Impact of Adding a Make-to-Order Item to a Make-to-Stock Production System

Author

Listed:
  • Awi Federgruen

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Ziv Katalan

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

Stochastic Economic Lot Scheduling Problems (ELSPs) involve settings where several items need to be produced in a common facility with limited capacity, under significant uncertainty regarding demands, unit production times, setup times, or combinations thereof. We consider systems where some products are made-to-stock while another product line is made-to-order. We present a rich and effective class of strategies for which a variety of cost and performance measures can be evaluated and optimized efficiently by analytical methods. These include inventory level and waiting-time distributions, as well as average setup, holding, and backlogging costs. We also characterize how strategy choices are affected by the system parameters. The availability of efficient analytical evaluation and optimization methods permits us to address the impact of product line diversification or standardization on the performance of the manufacturing system, in particular the logistical implications of adding low-volume specialized models to a given make-to-stock product line.

Suggested Citation

  • Awi Federgruen & Ziv Katalan, 1999. "The Impact of Adding a Make-to-Order Item to a Make-to-Stock Production System," Management Science, INFORMS, vol. 45(7), pages 980-994, July.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:7:p:980-994
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    File URL: http://dx.doi.org/10.1287/mnsc.45.7.980
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    References listed on IDEAS

    as
    1. Uday S. Karmarkar, 1987. "Lot Sizes, Lead Times and In-Process Inventories," Management Science, INFORMS, vol. 33(3), pages 409-418, March.
    2. Awi Federgruen & Ziv Katalan, 1996. "The Stochastic Economic Lot Scheduling Problem: Cyclical Base-Stock Policies with Idle Times," Management Science, INFORMS, vol. 42(6), pages 783-796, June.
    3. Charles R. Sox & L. Joseph Thomas & John O. McClain, 1997. "Coordinating Production and Inventory to Improve Service," Management Science, INFORMS, vol. 43(9), pages 1189-1197, September.
    4. Williams, T. M., 1984. "Special products and uncertainty in production/inventory systems," European Journal of Operational Research, Elsevier, vol. 15(1), pages 46-54, January.
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    Citations

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    Cited by:

    1. Olhager, Jan & Prajogo, Daniel I., 2012. "The impact of manufacturing and supply chain improvement initiatives: A survey comparing make-to-order and make-to-stock firms," Omega, Elsevier, vol. 40(2), pages 159-165, April.
    2. Soman, Chetan Anil & Pieter van Donk, Dirk & Gaalman, Gerard, 2006. "Comparison of dynamic scheduling policies for hybrid make-to-order and make-to-stock production systems with stochastic demand," International Journal of Production Economics, Elsevier, vol. 104(2), pages 441-453, December.
    3. repec:eee:proeco:v:194:y:2017:i:c:p:3-12 is not listed on IDEAS
    4. Soman, Chetan Anil & Donk, Dirk Pieter van & Gaalman, Gerard, 2002. "Combined make-to-order and make-to-stock in a food production system," Research Report 02A49, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    5. Beemsterboer, Bart & Land, Martin & Teunter, Ruud, 2017. "Flexible lot sizing in hybrid make-to-order/make-to-stock production planning," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1014-1023.
    6. Zhang, Zhe George & Kim, Ilhyung & Springer, Mark & Cai, Gangshu (George) & Yu, Yugang, 2013. "Dynamic pooling of make-to-stock and make-to-order operations," International Journal of Production Economics, Elsevier, vol. 144(1), pages 44-56.
    7. Beemsterboer, Bart & Land, Martin & Teunter, Ruud & Bokhorst, Jos, 2017. "Integrating make-to-order and make-to-stock in job shop control," International Journal of Production Economics, Elsevier, vol. 185(C), pages 1-10.
    8. Winands, E.M.M. & Adan, I.J.B.F. & van Houtum, G.J., 2011. "The stochastic economic lot scheduling problem: A survey," European Journal of Operational Research, Elsevier, vol. 210(1), pages 1-9, April.
    9. Hongler, Max-Olivier & Ciprut, Philippe, 2001. "Production indices obtained by a myopic policy for non-Markovian dynamics," International Journal of Production Economics, Elsevier, vol. 74(1-3), pages 115-123, December.
    10. Jelmer P. Gaast & Ivo J. B. F. Adan & René B. M. Koster, 2017. "The analysis of batch sojourn-times in polling systems," Queueing Systems: Theory and Applications, Springer, vol. 85(3), pages 313-335, April.
    11. S. Rajagopalan, 2002. "Make to Order or Make to Stock: Model and Application," Management Science, INFORMS, vol. 48(2), pages 241-256, February.
    12. Beemsterboer, Bart & Land, Martin & Teunter, Ruud, 2016. "Hybrid MTO-MTS production planning: An explorative study," European Journal of Operational Research, Elsevier, vol. 248(2), pages 453-461.
    13. Tang, Loon Ching & Lee, Loo Hay, 2005. "A simple recovery strategy for economic lot scheduling problem: A two-product case," International Journal of Production Economics, Elsevier, vol. 98(1), pages 97-107, October.
    14. Garn, Wolfgang & Aitken, James, 2015. "Agile factorial production for a single manufacturing line with multiple products," European Journal of Operational Research, Elsevier, vol. 245(3), pages 754-766.
    15. repec:spr:opsear:v:54:y:2017:i:2:d:10.1007_s12597-016-0286-1 is not listed on IDEAS
    16. repec:dgr:rugsom:02a49 is not listed on IDEAS
    17. Ghose, Sanjoy & Liu, John J. & Bhatnagar, Amit & Kurata, Hisashi, 2005. "Modeling the role of retail price formats, and retailer competition types on production schedule strategy," European Journal of Operational Research, Elsevier, vol. 164(1), pages 173-184, July.
    18. Martínez-Olvera, César, 2009. "Benefits of using hybrid business models within a supply chain," International Journal of Production Economics, Elsevier, vol. 120(2), pages 501-511, August.
    19. Soman, Chetan Anil & van Donk, Dirk Pieter & Gaalman, Gerard, 2004. "Combined make-to-order and make-to-stock in a food production system," International Journal of Production Economics, Elsevier, vol. 90(2), pages 223-235, July.
    20. repec:eee:transe:v:105:y:2017:i:c:p:60-82 is not listed on IDEAS
    21. Calle, Marcos & González-R, Pedro L. & Leon, Jose M. & Pierreval, Henri & Canca, David, 2016. "Integrated management of inventory and production systems based on floating decoupling point and real-time information: A simulation based analysis," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 48-57.

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