Order partitioning and Order Penetration Point location in hybrid Make-To-Stock/Make-To-Order production contexts

Download Order partitioning and Order Penetration Point location in hybrid Make-To-Stock/Make-To-Order production contexts

Post on 05-Sep-2016




7 download


  • Pn


    Order Penetration Point

    S)/Mnernttionactuword up

    arkets,y on hn syste, custoeduceompan

    OPP is located, diverse production strategies can be obtained. Fig. 1shows different locations of OPP and the corresponding productionenvironments. The scope of this paper includes MTS, MTO and hy-brid MTS/MTO production strategies.

    specic product is not initiated, unless a specic order is receivedfrom a customer. Although this system eliminates nished-goodsinventories and reduces rms exposure to nancial risk, it usuallyresults in long customer lead times and large order backlogs(Zaerpour, Rabbani, Gharegozli, & Tavakkoli-Moghaddam, 2008).Important issues considered in MTO systems are average responsetime, average order delay, due date setting etc. (Soman et al.,2004).

    Hybrid MTS/MTO production context is beneted from bothMTS and MTO. In hybrid systems, there are two distinct stages in

    q This manuscript was processed by Area Editor Mohamad Y. Jaber. Corresponding author. Tel.: +98 21 88021067; fax: +98 21 88013102.

    Computers & Industrial Engineering 61 (2011) 550560

    Contents lists availab

    Computers & Indus

    .eE-mail addresses: hraei@ut.ac.ir (H. Raei), mrabani@ut.ac.ir (M. Rabbani).production systems based upon a strategic question: How muchdo customer orders inuence production strategy? Order Penetra-tion Point (OPP) or Customer Order Decoupling Point (CODP) wasintroduced by taking into consideration both customers and pro-duction-line issues (Hoekstra & Romme, 1992). OPP is dened asthe point in the production value chain at which a specic orderis linked to a specic product. Therefore, this point divides theproduction activities into forecast-driven (downward the OPP)and customer-order-driven activities (upward the OPP) (Olhager,2003). Regarding different stages in production ow line at which

    customization can be performed on MTS products, as orders occurwhile products are fully processed and stocked in warehouses ofthe rm (Mu, 2001). Furthermore, in highly competitive industries,products have limited shelf life; therefore, nished products in apure MTS system are subjected to risk of obsolescence. Importantissues and measures in MTS environment are usually higher llrate, demand forecasting, lot sizing, average inventory levels, etc.(Soman, van Donk, & Gaalman, 2004).

    In contrary to MTS, MTO policy is fully structured with respectto customer orders. In an MTO environment, manufacturing of aProduct delivery strategyProduction planning

    1. Introduction

    In today growing competitive mpanys survival depends increasinglmanage and restructure its productiodiversity, improve delivery reliabilitysuitable production exibility and rwith these issues, manufacturing c0360-8352/$ - see front matter 2011 Elsevier Ltd. Adoi:10.1016/j.cie.2011.04.010a manufacturing com-ow best it can design,m to deal with productmize products, providesystem costs. To copeies often use different

    1.1. Production strategies

    Based on market demands response policy, production systemscan be classied into two major categories: MTS and MTO. MTSproduction strategy is based upon forecasts of product demandsand production is accomplished without considering specicationsof customer orders. Hence, considerable holding costs or stock-outcosts are inevitable in markets with uctuating demands. Also, noHybrid Make-To-Stock/Make-To-OrderOrder partitioning

    applicability of the proposed model. 2011 Elsevier Ltd. All rights reserved.Order partitioning and Order PenetrationMake-To-Stock/Make-To-Order productio

    H. Raei , M. RabbaniDepartment of Industrial Engineering, College of Engineering, University of Tehran, P.O.

    a r t i c l e i n f o

    Article history:Received 23 May 2010Received in revised form 19 April 2011Accepted 22 April 2011Available online 29 April 2011

    Keywords:Fuzzy analytic network process

    a b s t r a c t

    Hybrid Make-To-Stock (MTrecently attracted practitioenvironment. Two importadetermining Order Penetraon which product is manufThen, a fuzzy analytic netdecided to be manufacture

    journal homepage: wwwll rights reserved.oint location in hybridcontextsq

    11155-4563, Tehran, Iran

    ake-To-Order (MTO) is one of the product delivery strategies which haves and academicians interest to meet requirements of today competitivedecisions involved in hybrid MTS/MTO context are order partitioning andPoint (OPP) location. In this paper, a model is developed to rst decidered upon MTS, which one upon MTO and which one upon hybrid strategy.k process (ANP) is utilized to locate the OPP for the products which areon hybrid strategy. Finally, a real industrial case study is reported to show

    le at ScienceDirect

    trial Engineering

    lsev ier .com/ locate/caie

  • (Pull system)


    dusa common production line for each product; common and differen-tiation stages. During common stage, all products are processedthrough the same work centers with the same job descriptionsand semi-nished products are completed in differentiation stagewith respect to customer orders and associated customizations.The two above-mentioned stages are separated by a stocking pointcorresponding to each product. Compared with MTS, hybrid MTS/MTO environments yield higher level of customization, lesswork-in-process inventories, less backlog or loss-sales costs, lessholding cost, higher exibility etc., while some characteristics, likeunder load utilization and longer lead times are embedded to thisproduction strategy. To tradeoff between MTS and MTO as two ex-treme systems, hybrid systems have been adopted by practitionersand academicians in recent years. As discussed by Soman et al.(2004), since MTS/MTO system is a combination of two productionsystems, a variety of conicting issues are arisen in hybrid MTS/MTO and it is difcult to handle all of these issues simultaneously.In this regard, a hierarchical decision-making structure is a reason-able approach to solve the issues involved. This paper focuses ondetermining appropriate product delivery strategy for differentproducts in a manufacturing system (MTS/MTO partitioning). Next,OPP locations of products are determined with respect to theirdecided delivery strategies (OPP location). To make the two abovestrategic decisions in MTS/MTO systems, a comprehensive deci-sion-making structure is proposed for the rst time. The proposed

    Hybrid MTS/MTO (Hybrid push-pull system)

    Make-To-Stock (Push system)

    Fig. 1. Different production strategies; dashed and solid lines represent forecast-Olhager, 2003).Strategy Procurement

    Make-To-Order OPP

    H. Raei, M. Rabbani / Computers & Instructure results in three delivery strategies: MTS, MTO and hybridMTS/MTO. As there are inter-related decision criteria to locateOPPs, an ANP model is proposed. The proposed ANP model com-pensates deciencies of the previous models by considering in-ter-relations and both qualitative and quantitative criteria.Moreover, the proposed ANP is equipped with fuzzy sets theoryto tackle ambiguity and uncertainty of input judgments. To doso, next sections are structured as followings. Section 2 briey re-views the previously performed researches. The fuzzy ANP is elab-orated in Section 3, while the proposed decision-making structureis presented in Section 4. Section 5 provides a real case study andnally, some remarks and future research directions are concludedin Section 6.

    2. Literature review

    Due to long use of MTS systems, many instances have been de-voted to how to plan and schedule the products in the productionsystem to meet their forecasted demands. There are considerableamount of works in the literature considering production planningand scheduling techniques for MTS systems, especially inMRP-based systems (e.g. see Vollmann, Berry, Whybark, & Jacobs,2005). Of particular interest, the Hierarchical Production Planning(HPP) approach has been one of the most applied methodologiesfor MTS companies because of its several advantages in practice(e.g. see Omar & Teo, 2007). In contrary to MTS systems, the pro-duction system in MTO rms activates only when a new order isreceived. Hence, production planning and scheduling issues are to-tally different from those of MTS rms. The main objective in MTOenvironments is to manage the deliveries of arriving orders toreach shorter and more reliable delivery lead times. To achieve thisgoal, rms should focus on order due dates and their manufactur-ing lead times (Corti, Pozzetti, & Zorzini, 2006).

    Literature review on MTS/MTO systems reveals that there isonly a handful related researches in the literature body. This con-rms that research on MTS/MTO systems is still in its infantstages (Soman et al., 2004). To the best of our knowledge, the pa-per by Soman et al. (2004) is the most notable one in MTS/MTOliterature. They proposed a comprehensive HPP framework thatcovers important production management decisions for MTS/MTO situations in food processing. This framework consists of athree-level decision-making structure. Decisions of the rst levelare related to determining which products to be manufacturedupon the order and which products to be manufactured uponstock. At the second level, demand and capacity are balanced.The relevant decision at this level is allocation of production

    Processing Delivery



    en and customer-order-driven activities, respectively (Hoekstra & Romme, 1992;

    trial Engineering 61 (2011) 550560 551capacity to both MTS and MTO products. At the third level, thereare scheduling and controlling decisions by which production or-ders are sequenced and scheduled. With respect to this level ofthe proposed HPP (the third level), Chang, Pai, Yuan, Wang, andLi (2003) developed a heuristic production activity control modelto schedule and control wafer manufacturing in a hybrid waferfabrication environment (MTS and MTO). For MTO orders, theydeveloped a rigid order release plan and dispatching control. Also,they proposed a method to ll up an appropriate level of capacityby processing MTS orders. Mu (2001) developed a mathematicalmodel as a decision tool to design hybrid MTS/MTO systems byoptimizing the economic base stock level and location. Also, heshowed how to determine the optimal point separating MTSand MTO operations for both balanced and unbalanced ow lines.Rajagopalan (2002) proposed a non-linear integer program withservice level constraints for MTS/MTO partitioning problem. Hedeveloped a heuristic procedure to solve this problem. With re-spect to this level, another work was performed by Ertay(1998). He developed a simulation model to compare pull andpush system in cellular manufacturing. Finally, Zaerpour et al.(2008) presented a hybrid fuzzy AHP-SWOT model towards orderpartitioning. They considered sixteen criteria categorized in four

  • classes; strengths, weaknesses, opportunities, and threats, ofwhich two rst classes reect internal status of rm and twoother classes cover external and environmental factors.

    One of the most important strategic issues in MTS/MTO systemsis locating the OPPs of the products. Olhager (2003) presented sev-eral factors in three major classes that inuence position of theOPP. Also, he discussed benets and drawbacks of shifting OPPdownward and upward in the value chain, since different compet-itive priorities are attributed for the pre-OPP and the post-OPPoperations. Moreover, he proposed a model to identify the properproduct delivery strategy with respect to demand volume and vol-atility and also the relationship between production and deliverylead times. van Donk (2001) developed a suitable framework fora manager in food processing industries. He adapted the generaldecoupling point (DP) concept to support such decisions. Afteridentication of inuencing factors on DP, he discussed the effectsof each factor on the DP for certain product/market circumstances.

    Concluding from the literature, two different categories of re-searches have been performed so far. The rst category includesmathematical models which were devoted to decisions of the thirdlevel. The main drawbacks of this category are too many mathe-

    3. Fuzzy analytic network process

    ANP is one of Multi-Attribute Decision-Making (MADM) meth-ods which have been recently applied in numerous elds. ANP wasrstly introduced by Saaty (1996) as a general form of anotherMADM method, Analytic Hierarchical Process (AHP) (Saaty,1980). An axiom of the AHP is independency between elementsin every level of the associated hierarchy, while ANP can modelthe interrelationship (dependencies) between decision factors aswell as alternatives, or between them in a more complex manner.Moreover in this paper, fuzzy sets theory (Zadeh, 1965) is aug-mented to the ANP due to the uncertainty and ambiguity of thepreference-based comparisons of decision-makers. Broad scopeand applicability of both fuzzy sets theory and ANP made fuzzyANP an applicable robust tool which has been challenged in diversedisciplines; such as Ertay, Kahraman, and Ruan (2005) and Kahr-aman, Ertay, and Bykzkan (2006) in quality function deploy-ment, Dagdeviren, Yksel, and Kurt (2008) in safety systems, Linand Hsu (2008) in performance management, Tseng, Liu, and Chin(2008) in clean technology, and Wu, Lin, and Chen (2009) in loca-

    552 H. Raei, M. Rabbani / Computers & Industrial Engineering 61 (2011) 550560matical limiting assumptions. These assumptions made the modelstoo difcult to comprehend, implement and communicate. Hence,they are actually useless. The second category relates to the re-searches which apply qualitative methods in order to make deci-sions, such as order partitioning and OPP locating. Theseresearches are also useless, because they are so descriptive withoutany explicit applicable model, except the one by Zaerpour et al.(2008). However, their proposed fuzzy AHP-SWOT model is notwell-structured, because it does not consider relationships amongdecision criteria. Moreover, order partitioning and OPP locating aretwo decisions which are completely interrelated. No research pa-pers have evaluated these two decisions integrated. Therefore, tocope with the aforementioned drawbacks, an ANP model is pro-posed in order to model the interrelationship among decision cri-teria in this paper. Moreover, a step-wise model is developedtowards order partitioning and OPP locating. Applying the pro-posed model enhances implementation capabilities of the pro-posed model. Also, it is easily communicated and comprehendedby the managers. Finally, fuzzy sets theory is utilized in the pro-posed ANP, because considered decisions are strategic and theydeal with imprecise data.



    Alternatives C3

    cycle(a) Fig. 2. (a) AHP decision hierarchy versus (b) ANtion problem. Followings describe elaborately general steps of theadopted fuzzy ANP which is used in Section 4.

    3.1. Network formation

    In this step, decision criteria are grouped in some clusters. Clus-ters are formed with respect to some issues, such as nature and im-pact of criteria. As well as the clusters of decision criteria, aseparate cluster is devoted to the alternatives. In a...


View more >