Operations planning for a two-stage production system under lumpy demand

This paper considers a two-stage production delivery system that incorporates a fixed quantity supply of finished goods to a buyer at a fixed interval of time. The problem is to decide an optimal batch size and raw-material ordering policy for such a system. A general cost model is formulated considering both supplier (of raw materials) and buyer (of finished products) sides. Then an optimal solution to the problem is derived on basis of the cost model. We also analyze the sensitivity of raw materials ordering and production lot size to changes in ordering cost, transportation cost and manufacturing setup cost. A pragmatic computation approach for operational situations is developed to solve integer approximation solution. Finally, some numerical examples are given to demonstrate the optimal solution and computational approach.