Economic manufacturing quantity in a two-stage production system under periodic delivery policy

A production-delivery system in a supply chain management environment is always expected both to synchronize its production with customers´ demand, and to coordinate the ordering of raw materials with production schedules so that both raw materials and finished goods inventory are reduced. This paper developed a decision-making model for an optimal production policy in a two-stage production-delivery system that incorporates a fixed quantity supply of finished goods to a buyer at a fixed interval of time. First, a general cost model was formulated considering both supplier (of raw materials) and buyer (of finished products) sides. Then an optimal solution to the problem was inferred on basis of the cost model. At the same time, we analyzed the sensitivity of raw materials ordering and production lot size to changes in ordering cost, transportation cost and manufacturing setup cost. A pragmatic computation approach for operations situation was developed to solve integer approximation solution. Finally, some numerical examples were given to demonstrate the optimal solution and computational approach.