Optimal Safety Stock Policy for a Hybrid Manufacturing System: A Simulation Study

A real-world factory simultaneously adopting make-to-order (MTO), make-to-stock (MTS), and assembly-to-order (ATO) production strategies for its foreign and local customers is understudied. Foreign orders are more unpredictable and with long lead time where MTO is implemented. On the other hand, local orders are fulfilled by agencies that constantly place orders demanding short lead time. Therefore, for local orders, the factory implements both MTS and ATO strategies depending on the manufacturing lead time of the product. In an attempt not only to minimize inventory cost and work-in-process (WIP) levels, but also to fulfill customer demands by maximizing customer service level, an optimal safety stock policy must be implemented. In this study, a safety stock policy contain safety stock level and reorder point of subassemblies, manufacturing batch size, order review and release (ORR) mechanisms, as well as dispatching rules. This study conducts a two-stage simulation experiment to first evaluating performances of dispatching rules and ORR rules, and then using results from the first stage to further design several safety stock policies that will be evaluated in the second stage for the hybrid manufacturing system.