Stochastic lot sizing for maximisation of shareholder wealth in make-to-order manufacturing

S.H. Choi and X.J. Wang

International Journal of Production Research, 2015, vol. 53, issue 4, 1180-1197

Abstract: Current research in production planning focuses mainly on optimising operational objectives, taking little consideration of the primary principle of corporate governance and investor interests. Such approaches often overlook the critical roles of the cost structure and financial position of a firm, rendering the optimisation results unreliable. This paper studies stochastic lot sizing optimisation in make-to-order manufacturing, with an aim to maximise the full investor interests, well known as shareholder wealth. It presents a relatively simple yet reliable lead time model based on probability theory and stochastic processes. Moreover, the impacts of macroeconomic factors are examined to seek potential drivers for shareholder wealth. Theoretical optimality properties are proved to validate the effectiveness of the proposed model in dealing with batch production planning. Numerical examples and analytical results are presented to illustrate the significance of considering such economic and financial constraints and shareholder wealth. These results highlight that the proposed model can help improve shareholder wealth, and that it is a useful tool for examining the potential challenges and opportunities of shareholder wealth creation in production planning.

Date: 2015
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DOI: 10.1080/00207543.2014.951090

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