ECONOMIC PRODUCTION QUOTAS FOR PULL MANUFACTURING SYSTEMS

We consider the problem of using “safety capacity” to ensure due date integrity in a pull manufacturing system and quantify the basic tradeoff between lost revenue opportunity and overtime costs. In this context, we address the question of when it is economically attractive to use “under capacity scheduling” and the problem of setting economic production quotas.

We develop four models for addressing the quota setting problem. The first three assume that quota shortfalls cannot be carried over to the next regular time production period. Models 1 and 3 assume that these shortages are made up on overtime and incur fixed or fixed plus variable costs. Model 2 does not use a capacity buffer and treats shortages as lost sales. Finally, Model 4 assumes that shortages can be backlogged to the next regular time production period at a cost. For this model, we compute both an optimal quota and an overtime “trigger,” which represents the minimum shortage for which overtime is used. We give computational results that illustrate and contrast the various models.