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Dynamic pooling of make-to-stock and make-to-order operations

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  • Zhang, Zhe George
  • Kim, Ilhyung
  • Springer, Mark
  • Cai, Gangshu (George)
  • Yu, Yugang

Abstract

It has become increasingly common for companies to offer make-to-stock (MTS) and make-to-order (MTO) versions of the same product through different sales channels. To satisfy these two distinct demand streams, one strategy is to produce both the MTS and MTO items in a single “hybrid” facility partially comprised of flexible servers or machines. We develop a multi-server queueing model of this system, where a subset of the servers or machines is dynamically switched between MTS and MTO production via a congestion-based switching policy. We develop analytical formulae for quantifying all major performance measures of the system. We also present a search procedure to find the capacity and inventory control parameters which minimize the total costs of the system while satisfying the customer service constraints. Numerical results are used to illustrate the general behavior of the dynamic hybrid system and to compare its performance to that of a more conventional static hybrid facility with dedicated MTS and MTO servers. For high levels of traffic intensity, the dynamic system is shown to provide superior customer service for both sales channels with lower finished goods inventory levels.

Suggested Citation

  • Zhang, Zhe George & Kim, Ilhyung & Springer, Mark & Cai, Gangshu (George) & Yu, Yugang, 2013. "Dynamic pooling of make-to-stock and make-to-order operations," International Journal of Production Economics, Elsevier, vol. 144(1), pages 44-56.
    • Handle: RePEc:eee:proeco:v:144:y:2013:i:1:p:44-56
    DOI: 10.1016/j.ijpe.2013.01.012
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    References listed on IDEAS

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    1. Awi Federgruen & Ziv Katalan, 1999. "The Impact of Adding a Make-to-Order Item to a Make-to-Stock Production System," Management Science, INFORMS, vol. 45(7), pages 980-994, July.
    2. S. Rajagopalan, 2002. "Make to Order or Make to Stock: Model and Application," Management Science, INFORMS, vol. 48(2), pages 241-256, February.
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    7. Soman, Chetan Anil & van Donk, Dirk Pieter & Gaalman, Gerard, 2004. "Combined make-to-order and make-to-stock in a food production system," International Journal of Production Economics, Elsevier, vol. 90(2), pages 223-235, July.
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    Citations

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    Cited by:

    1. Agra, Agostinho & Poss, Michael & Santos, Micael, 2018. "Optimizing make-to-stock policies through a robust lot-sizing model," International Journal of Production Economics, Elsevier, vol. 200(C), pages 302-310.
    2. Fernandes, Nuno O. & Silva, Cristóvão & Carmo-Silva, S., 2015. "Order release in the hybrid MTO–FTO production," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 513-520.
    3. Tanja Mlinar & Philippe Chevalier, 2016. "Pooling heterogeneous products for manufacturing environments," 4OR, Springer, vol. 14(2), pages 173-200, June.
    4. Ghasemi, Elaheh & Lehoux, Nadia & Rönnqvist, Mikael, 2024. "A multi-level production-inventory-distribution system under mixed make to stock, make to order, and vendor managed inventory strategies: An application in the pulp and paper industry," International Journal of Production Economics, Elsevier, vol. 271(C).
    5. Beemsterboer, Bart & Land, Martin & Teunter, Ruud, 2016. "Hybrid MTO-MTS production planning: An explorative study," European Journal of Operational Research, Elsevier, vol. 248(2), pages 453-461.
    6. Sato, Yutaro & Maeda, Hiroyuki & Toshima, Ryusei & Nagasawa, Keisuke & Morikawa, Katsumi & Takahashi, Katsuhiko, 2023. "Switching decisions in a hybrid MTS/MTO production system comprising multiple machines considering setup," International Journal of Production Economics, Elsevier, vol. 263(C).
    7. Shouyao Xiong & Yuanyuan Feng & Kai Huang, 2020. "Optimal MTS and MTO Hybrid Production System for a Single Product Under the Cap-And-Trade Environment," Sustainability, MDPI, vol. 12(6), pages 1-16, March.

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