Centralized Versus Decentralized Scheduling and Due Date Quotation in a Make-to-Order Supply Chain

Although there is a vast and growing amount of literature on supply chain coordination, the majority of this literature focuses on make-to-stock systems and performance measures built around service and inventory levels. On the other hand, an increasing number of supply chains are better characterized as make-to-order systems. Fast and on-time delivery is obviously critical for any firm that operates as a make-to-order system, and the manufacturersupplier relationship dramatically impacts the delivery of products and system performance. In this research, we analyze such a make-to-order system in a supply chain setting and develop algorithms for scheduling and due-date quotation in both centralized and decentralized versions of this system. We also explore the value of information sharing in this setting. We consider a manufacturer with a single supplier that has to quote due dates to arriving customers in a make-to-order production environment. The manufacturer is penalized for long lead times, and for missing due dates. In order to meet due dates, the manufacturer has to obtain components from the supplier. As in most single facility due date quotation models (see Kaminsky and Hochbaum [1] for a survey), the manufacturer’s objective is to determine a schedule and quote due dates in order to minimize a function of quoted lead time length and lateness. We consider several variations of this problem, and design effective due-date quotation and scheduling rules for centralized and decentralized versions of the model. We also investigate the relative advantage of a centralized system under various conditions. In our model, customer orders i, i = 1, 2, ..., n arrive at the manufacturer at time ri which is not known in advance, and the manufacturer quotes each customer a due date di at the arrival of the order. To complete the processing and to deliver the product to the customer, the manufacturer needs some materials from the supplier and orders these materials from