Setting optimal production lot sizes and planned lead times in a job shop

Abstract

In this research, we model a job shop that produces a set of discrete parts in a make-to-stock setting. The intent of the research is to develop a planning model to determine the optimal tactical policies that minimise the relevant manufacturing costs subject to workload variability and capacity limits. We consider two tactical decisions, namely the production lot size for each part and the planned lead time for each work station. We model the relevant manufacturing costs, entailing production overtime costs and inventory-related costs, as functions of these tactical decisions. We formulate a non-linear optimisation model and implement it in the Excel spreadsheet. We test the model with actual factory data from our research sponsor. The results are consistent with our intuition and demonstrate the potential value from jointly optimising over these tactical policies.