Priority optimization and make-to-stock/make-to-order decision in multiproduct manufacturing systems

We consider a single-stage multiproduct manufacturing facility producing a large number of end products. In order to reduce overall inventory costs, an efficient approach is to produce some items according to a make-to-stock (MTS) policy and others according to a make-to-order (MTO) policy. Items priority levels play a key role in the optimal MTO/MTS decisions for such typical large-scale systems. To tackle this issue, the manufacturing facility is modeled as a multiproduct multipriority classes queuing system. We propose a general optimization procedure that selects near-optimal priority classes, gives the associated flow control mode (MTO or MTS) for each product, and provides a lower bound and an upper bound with respect to the optimal cost. First, we illustrate efficiency of our optimization procedure for this class of nonlinear integer programs via several examples and by a numerical analysis, including a comparison with two alternative heuristics given in the literature. In addition, we provide managerial insights by exhibiting, under various parameter settings, the significant impact of an efficient priority level allocation among items on the inventory costs and on optimal splitting between MTO and MTS products.