Effects of flexibility through set-up time reduction and expediting on integrated production-distribution systems

A model of an integrated production-distribution system is applied to the question of the impact of flexibility (setup time reduction and expediting) in manufacturing on stock levels throughout the supply chain. The analysis is based on a three-echelon supply chain model consisting of three locations: a factory work center, a finished-goods (FG) stockpile, and a retailer stocking point. One product is manufactured and distributed. Two model variations are introduced to represent systems in which the FG stockpile may or may not expedite in the event of a stockout. The ability of the factory to expedite represents the second aspect of flexibility considered. Since expedited orders interrupt the processing of replenishment orders, production scheduling is directly linked to the inventory-stocking policies at the FG stockpile. FG policies are, in turn, affected by stock control at the retailer. The results indicate that the cost of holding inventory will be less when manufacturing has low setup times and that the gains from implementing an expediting system are realized only in high-setup-time facilities