Production scheduling and admission control for maximizing energy consumption efficiency in a two stage supply chain
Authors:   Asia-Europe Perspective Association, Kim Eun-gab 
Published: April 2019

This paper considers a two-stage supply chain with a component production facility and an end item production facility and studies a joint order admission, component production, and end product production rate control policy which maximizes the supply chain’s profit.
Customer orders can be accepted or rejected depending on the system status. A revenue is generated if each customer order is accepted, while a penalty is incurred if each incoming customer order is rejected. The MTO facility has the option of changing its production rate within the given limits. The component production facility produces components based on the make-to-stock mode.
Components in inventory incur holding costs per uni time and backlogged customer orders incur backorder costs per unit time. An energy consumption cost is generated per unit time with the available MTO production rates. It increases as the MTO production rate increases. The customer order inter-arrival times and MTO and component production times are stochastic.
Recently, most of manufacturing companies consider customized manufacturing as a significant core competency that must be acquired. Although customized manufacturing reduces the burden of inventories, product variability due to customization raises the problem of managing production capacity facing with variable customer demands.
For this reason, the effective and efficient use of production capacity becomes essential in MTO production. Recent works in the production literature show that the ability to dynamically control production capacity may cope with this problem. In particular, a flexible production capacity enables companies to become energy efficient in their manufacturing process and so reap environmental and economic benefits.
The set of decision epochs in our model corresponds to the epochs of customer order, MTO production completion, and component production completion. At each decision epoch, the manufacturer determines whether or not the component production facility produces a unit of component and what production rate the MTO production facility should choose to process an outstanding customer order. Furthermore, when a customer order arrives, the MTO production facility must make a decision about whether to accept or reject it.
To model the problem presented in this paper, we adopt the Markov decision process model. To this end, the customer order inter-arrival times and MTO and component production times are assumed to be exponentially distributed. Then, we numerically investigate the structure of the optimal order admission, component production, and end product production rate control policy using an example.
The numerical investigation indicates that the optimal admission control accepts more customer orders as the component inventory increases, the optimal component production control allows more production as the backorder level increases, and the optimal end product production rate control increases the production rate as the component inventory level increases.
We examine the impact of an end product production rate control option on the manufacturer’s profit. The study confirms that the production system with a controllable production rate has a great percentage improvement in the profit over the one with a fixed mean production rate.
Our numerical study also indicates that the economic benefits can vary depending on system parameters. The performance difference of the systems with and without a controllable production rate option becomes larger as the customer arrival rate, backorder cost, and unit component production cost increase, while it becomes smaller as the product revenue increases.
We also investigate how the size of standard deviation of the customer inter-arrival, product production, and component production times affect the performance difference of the systems with and without a controllable production rate option.