Production Overrun Optimization Considering Supply Chain Network Reliability

Production overrun is a common practice in manufacturing to meet the demand by increasing the number of qualified products and compensating for manufacturing defects. While production overrun can improve Supply Chain Network Reliability (SCNR), it leads to higher material costs. In this paper, a model is proposed to evaluate SCNR by incorporating the reliabilities of inbound logistics, operations, and outbound logistics. Based on the proposed SCNR model, we study the optimal production overrun of each manufacturing site in a supply chain network and identify the production plan that satisfies the reliability requirement with minimum total production overrun penalty. By analyzing the monotonicity of the objective and constraint functions of the formulated problem, an algorithm based on linearization is developed to solve this optimization problem. Numerical examples across various scales are presented to illustrate the developed model and method. The impact of the penalty coefficient of the production overrun on the result is investigated. The results from the numerical examples provide managerial insights on allocating resources in the entire supply chain network and improving the supply chain reliability and competitiveness.