Optimal and Heuristic Procedures for Component Lot-Splitting in Multi-Stage Manufacturing Systems

Component lot-splitting considerations, in which the lot-size of a component item may cover only a fraction of its parent item's lot-size, have been ignored in the literature when determining lot-sizes of items in multi-stage manufacturing systems. In this paper, a multi-stage lot-sizing problem is formulated under a specified component lot-splitting policy for the case of noninstantaneous production of items and constant demand for the end item. Optimal and heuristic solution procedures for the formulated problem are provided, including experimental results of comparison between these procedures. It is shown that considerable cost savings can result if the component lot-splitting approach is employed under favorable conditions in multi-stage manufacturing environments. In addition, reduced inventory levels are achieved which translate into lower working capital requirements and a less cluttered shop floor. The heuristic procedure is recommended as an acceptable alternative to the optimal procedure if the number of items in the multi-stage system is large or if inventory carrying and setup/order costs cannot be accurately estimated. Further, component lot-splitting considerations may be ignored if production rates of facilities in the system are in balance. Finally, a methodology for application of the component lot-splitting policy where the end item demand is time-varying is discussed.