Synchronization in a two‐supplier assembly system: Combining a fixed lead‐time module with capacitated make‐to‐order production

Abstract

AbstractA 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 the common case of 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 up to 17% are attained.