Optimisation of production and subcontracting strategies

We consider the problem of optimising production and subcontracting decisions in a supply chain manufacturing engineered products. The supply chain manager can use a combination of internal production capacities, available capacity at qualified subcontractors, make capital investments and process improvements to minimise costs associated with production and penalties for not meeting desired operational metrics. We formulate this as an optimisation problem that requires simultaneous solution of a mathematical programming problem and queuing network model. We propose an efficient iterative approach to solve this problem and conduct numerical studies to demonstrate the effectiveness of the approach.