A dynamic lot sizing model with production-or-outsourcing decision under minimum production quantities

Abstract

In the real-world production process, the firms need to determine the optimal production planning under minimum production quantity constraint in order to achieve economies of scale. However, the inventory cost will hugely increase when there is a very large amount of production in a period and also a large amount of total demands for the next few periods. This paper considers a single-item dynamic lot sizing problem with production-or-outsourcing decisions. In each period, the production level cannot be lower than a given quantity in order to make full use of resources, but the outsourcing is unrestricted. The demands in a period can be backlogged. The production and outsourcing costs are fixed-plus-linear, and the inventory and backlogging costs are linear. We establish a mathematical programming model according to the real problem in the firm. We explore some structural properties of the optimal solution and use them to develop a dynamic programming algorithm to solve the proposed problem. We further present a special case with stationary production and outsourcing costs which can be solved with reduced computational complexities. In the end, we use three numerical instances to show how to obtain the optimal solutions by using the dynamic programming algorithm. Furthermore, we show that the policy of backlogging or outsourcing can reduce the total cost.

Application of Multi-Items Epq Models in Course Materials Management: Towards Building a Decision Support System for the National Open University of Nigeria

“…The paper introduced a novel Lagrangian heuristics for solving benchmark instances. Tang et al, (2020) considered a single item dynamic ELSP with production or outsourcing decisions. Results indicated that total cost can be reduced through backlogging or outsourcing.…”

Strategic outsourcing decisions of new entrant and competing incumbent manufacturer in a supply chain with common supplier

“…Previous studies have focused on outsourcing strategies (decisions) of manufacturers. Research has studied varieties factors that impact firm's outsourcing decision, including production cost [3,28,32,12,13,34,44], operational risk [46], supply uncertainty [5,23,38,37], product quality [31,48], quality investment [40], scale economies [19,8], customer returns [30]. Ghamat et al [15] consider the setting where a competitive contract manufacturer has a limited capacity and shows that the original brand manufacturer might multisource its component only when competition in the final product market is intense.…”

“…Conclusions. Previous studies mainly focus on the make-or-buy decision of two competing manufacturers [46,5,38,44] or the advantages of strategic outsourcing from different angles [7,25,41,21]. However, the cooperation between the new entrant manufacturer and supplier may hurt the incumbent manufacturer's potential benefits.…”