Integration of customer and supplier flexibility in a make-to-order industry

Purpose – The purpose of this paper is to solve an integration of customer and supplier flexibility problem in a make-to-order (MTO) industry. The flexible strategies, where delivery leadtime and unit price (or raw material cost) can be negotiated, are provided by customers and suppliers. Its effectiveness is illustrated by a practical application. Design/methodology/approach – The present study is a rolling decision-making problem and is solved by a proposed combined mixed integer program (MIP) and simulation approach. A simulation model was developed for evaluating solutions of the MIP and will serve as the virtual factory to provide the initial work-in-process status for a new incoming order evaluation. Findings – The experimental results show that when either customers or suppliers provide flexible strategies to the manufacturer, total profits can be increased. Moreover, when both customers and suppliers provide flexibility strategies to the manufacturer simultaneously, total profits can be significantly increased. Research limitations/implications – An expanded experiment would be of help in realizing the relationship between the flexibility and profit. Moreover, there are other price-sensitivity functions for both customers and suppliers. Practical implications – A fishing-net manufacturing company was used for the case study to illustrate the effectiveness and the feasibility of the proposed methodology and its application to industry. Originality/value – The proposed methodology innovatively solved a practical application. The customer and supplier flexibility was investigated in a MTO production system that has no inventory of raw material. The experimental results are promising.