Efficient management of production-inventory system in a multi-item manufacturing facility: MTS vs. MTO

Abstract

Suppliers produce a variety of products to serve both large and small customer orders with unreliable demand information. Furthermore, suppliers also face customer pressure to improve quality, lower cost, and reduce delivery delay. These conflicting objectives lead firms to use both make-to-stock and make-to-order production strategies together. These manufacturing strategies were known to be competing policies and in some cases the choice depends on characteristics of the product. In this study, the firms that manufactured multiple-item types are considered to be free to choose either production policy for each product type (no product-specific requirements are present). Then, using the order-arrival characteristics and cost parameters for each product type, the firm wants to decide which production/scheduling policy to use for each product type. Two production policy (MTS vs MTO) and two scheduling strategy (FIFO vs cyclic) are considered in this study. The analysis and numerical study show that there is no dominant strategy neither for production policy, nor product scheduling policy.