A queuing approach for making decisions about order penetration point in multiechelon supply chains

Abstract

This study is dedicated to order penetration point (OPP) strategic decision making which is the boundary between make-to-order (MTO) and make-to-stock (MTS) policies. A multiproduct multiechelon production supply chain is considered where the first production stage manufactures semifinished products based on an MTS policy to supply the second production stage which operates on the MTO policy. The producer desires to find the optimal fraction of processing time fulfilled by supplier and optimal semifinished products buffer capacity in OPP. To calculate system performance indexes, the matrix geometric method is employed. Afterward, optimal solutions are obtained by enumeration and direct search techniques. Moreover, the system behavior is analyzed by the numerical example. It is shown that system total cost is a concave function of increasing completed percentage in first production stage. According to the total cost function elements, managers desire to locate OPP where to balance the order fulfillment delay cost, holding cost and the cost of disposing unsuitable items. Finally, the impact of different amounts of storage capacity on OPP and total cost are analyzed. Also, the manner of expected numbers of unsuitable products, semifinished products, and expected order completion delay are analyzed versus various quantities of storage capacity and production rate.