A comparison of make-to-stock and make-to-order in multi-product manufacturing systems with variable due dates
K. Altendorfer, S. Minner - A comparison of make-to-stock and make-to-order in multi-product manufacturing systems with variable due dates - IIE TRANSACTIONS, Vol. 46, No. 3, 2014, pp. 197-212
We model a single-stage hybrid production system, which can be regarded as a make-to-order (MTO) production system with safety stocks or a make-to-stock (MTS) production system with advance demand information. In an environment with multiple items and variable customer due dates, optimality conditions for safety stocks and safety lead times that minimize inventory and backorder costs are derived. For a simplified M/M/1 system with exponentially distributed customer required lead time, an explicit comparison between MTO and MTS is conducted. A pure MTO policy becomes relatively more favorable to a pure MTS policy if inventory holding costs increase, backorder costs decrease, the mean customer required lead time increases, or the processing rate increases. In a numerical study the cost reduction potential of a hybrid policy is shown.