Using the EPQ for coordinated planning of a product with partial backordering and its components

While there has been considerable work over the years on multistage lot-sizing models, particularly in an MRP environment, there has been relatively little work on systems recognizing the WIP effects when there is gradual conversion of the components into the final product, as in production planning using the EPQ model for planning the final product. Here we consider lot-sizing planning for a two-stage system in which the final product is planned using an EPQ model with partial backordering and the production of the components is controlled using basic EPQ models without backordering.