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Simultaneous Capacity and Planned Lead Time Optimization

In: Capacity and Inventory Planning for Make-to-Order Production Systems

Author

Listed:
  • Klaus Altendorfer

    (University of Applied Sciences Upper Austria)

Abstract

The literature on simultaneous capacity and inventory investment problems (see Chap. 2 ) shows that, especially for the MTS case, there are several contributions available, but for the MTO case, there is still a research gap about the influence of capacity investment on optimal planned lead time. A simultaneous approach to capacity and planned lead time setting is presented in this chapter based on costs for capacity, WIP at each stage, FGI, and backorders. This extends existing planned lead time approaches by introducing a distributed customer required lead time rather than applying a single value and a variable production lead time that can be optimized by investments. Furthermore, it extends existing capacity investment approaches by including a distributed customer required lead time and by rationing the work release, and therefore the inventory, with the application of planned lead times. First the simultaneous optimization problem is stated for a general setting before detailed results for a single- and a two-stage production system, assuming M/M/1 queues for the processing steps, are developed. For the two-stage production system consisting of M/M/1 queues and an exponentially distributed customer required lead time it is shown that only very little cost improvement can be gained by including a planned lead time for the upstream processing stage. This extends the findings of Yano (1987), Buzacott and Shanthikumar (1994), and Karaesmen et al. (2004) who analyze an MTO system with a constant customer required lead time. Furthermore, a large cost improvement potential is found when capacity investment and planned lead times are simultaneously optimized.

Suggested Citation

  • Klaus Altendorfer, 2014. "Simultaneous Capacity and Planned Lead Time Optimization," Lecture Notes in Economics and Mathematical Systems, in: Capacity and Inventory Planning for Make-to-Order Production Systems, edition 127, chapter 0, pages 43-71, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-00843-1_4
    DOI: 10.1007/978-3-319-00843-1_4
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