Synchronization in a Two-supplier Assembly System: Combining a Fixed Lead-time Module with Capacitated Make-to-Order Production

TL;DR

This paper analyzes a two-supplier assembly system with one fixed lead-time module and one make-to-order module, proposing a coordinated ordering policy that reduces costs by approximately 17% compared to fixed policies.

Contribution

It introduces a novel coordinated order policy with base-stock levels dependent on in-house production backlog, proving its optimality and demonstrating cost savings.

Findings

The proposed policy is monotonic and optimal.

Average cost savings of 17% are achieved.

The policy adapts base-stock levels based on outstanding orders.

Abstract

A high-tech manufacturer often produces products that consist of many modules. These modules are either sourced from one of its suppliers or produced in-house. In this paper we study an assembly system in which one module is sourced from a supplier with a fixed lead-time, while the other module is produced by the manufacturer itself in a make-to-order production system. Since unavailability of one of the modules has costly consequences for the production of the end-product, it is important to coordinate between the ordering policy for one module and the production of the other. We propose an order policy for the lead-time module with base-stock levels depending on the number of outstanding orders in the production system of the in-house produced module. We prove monotonicity properties of this policy and show optimality. Furthermore, we conduct a computational experiment to evaluate how the costs of this policy compare to those of a policy with fixed base-stock levels and show that average savings of 17% are attained.