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Production lot sizing with a secondary outsourcing facility

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  • Lee, Shine-Der
  • Lan, Shu-Chuan

Abstract

An extended economic production quantity (EPQ) model under stochastic demand is investigated in this paper, where a fixed lot sizing policy is implemented to reduce the complexity of production planning and inventory control, and outsourcing with a secondary facility is used to supplement the lot sizing policy and to cope with the random demand. The considered cost includes: setup cost for the batch production, inventory carrying cost, backorder cost when the demand cannot be met immediately during the production period, and outsourcing cost when the total demand is greater than the lot size in one replenishment cycle. Under some mild conditions, the expected cost per unit time can be shown to be convex. Extensive computational tests have illustrated that the average cost reduction of the proposed model is significant when compared with that of the classical lot sizing policy. Significant cost savings can be achieved by deploying the production lot sizing policy with an outsourcing strategy when the mean demand rate is high.

Suggested Citation

  • Lee, Shine-Der & Lan, Shu-Chuan, 2013. "Production lot sizing with a secondary outsourcing facility," International Journal of Production Economics, Elsevier, vol. 141(1), pages 414-424.
    • Handle: RePEc:eee:proeco:v:141:y:2013:i:1:p:414-424
    DOI: 10.1016/j.ijpe.2012.09.008
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    Cited by:

    1. Shine-Der Lee & Chin-Ming Yang & Shu-Chuan Lan, 2016. "Economic lot sizing in a production system with random demand," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(5), pages 1142-1154, April.
    2. Martin Albrecht, 2017. "Coordination of dynamic lot-sizing in supply chains," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(3), pages 322-330, March.
    3. Li, Yantong & Chu, Feng & Chu, Chengbin & Zhu, Zhanguo, 2019. "An efficient three-level heuristic for the large-scaled multi-product production routing problem with outsourcing," European Journal of Operational Research, Elsevier, vol. 272(3), pages 914-927.
    4. Raj Kumar Bachar & Shaktipada Bhuniya & Santanu Kumar Ghosh & Biswajit Sarkar, 2022. "Controllable Energy Consumption in a Sustainable Smart Manufacturing Model Considering Superior Service, Flexible Demand, and Partial Outsourcing," Mathematics, MDPI, vol. 10(23), pages 1-29, November.
    5. Mohammed Haoues & Mohammed Dahane & Nadia Kenza Mouss, 2019. "Outsourcing optimization in two-echelon supply chain network under integrated production-maintenance constraints," Journal of Intelligent Manufacturing, Springer, vol. 30(2), pages 701-725, February.

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