Lead time and inventory decisions in a push-and-pull system

This paper studies the design and control issues of a two-stage push-and-pull system with lead-time quotation and stock decisions. To evaluate the performance of different designs of the system, we construct a decision model to minimize holding costs of the semi-finished product and the finished product, the late delivery cost, and customer waiting cost by optimizing base-stock level of the semi-finished product and the quoted lead time. By using a constant service time at the push stage as a benchmark, we provide explicit formulas and accurate heuristics to compute and approximate the optimal solutions for various system settings. Moreover, we demonstrate the impact of the uncertainty of the push stage on the system design.