A Decision-making Model for a Two-stage Production-delivery System in SCM Environment

Abstract

A decision-making model is developed for an optimal production policy in a two-stage production-delivery system that incorporates a fixed quantity supply of finished goods to a buyer at a fixed interval of time. First, a general cost model is formulated considering both supplier (of raw materials) and buyer (of finished products) sides. Then an optimal solution to the problem is derived on basis of the cost model. Using the proposed model and its optimal solution, one can determine optimal production lot size for each stage, optimal number of transportation for semi-finished goods, and optimal quantity of semi-finished goods transported each time to meet the lumpy demand of consumers. Also, we examine the sensitivity of raw materials ordering and production lot size to changes in ordering cost, transportation cost and manufacturing setup cost. A pragmatic computation approach for operational situations is proposed to solve integer approximation solution. Finally, we give some numerical examples. © 2004, The Institute of Electrical Engineers of Japan. All rights reserved.