Lot Sizing Optimisation for Stochastic Make-to-order Manufacturing

Abstract

Lot sizing is pivotal to batch manufacturing, especially in stochastic environments. Although progress has been made in the field for some operational objectives, the optimised results are often rendered unrealistic because few studies have considered the overall business goal and the economic environment where businesses operate. This paper examines a stochastic lot sizing optimisation model for make-to-order manufacturing with a focus on the overall business goal—the maximisation of shareholder wealth. In addition to the economic objective, the effect of the economic environment is also incorporated into this model. Numerical experiments validate the importance of considering such economic and financial constraints and objectives, especially for firms with relatively high setup costs or being sensitive to lead times. The proposed model can assist the management in gaining insight into potential challenges and opportunities pertinent to the shareholder wealth.