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A high-tech manufacturer often produces products that consist of manymodules. These modules are either sourced from one of its suppliers or producedin-house. In this paper we study an assembly system in which one module issourced from a supplier with a fixed lead-time, while the other module isproduced by the manufacturer itself in a make-to-order production system. Sinceunavailability of one of the modules has costly consequences for the productionof the end-product, it is important to coordinate between the ordering policyfor one module and the production of the other. We propose an order policy forthe lead-time module with base-stock levels depending on the number ofoutstanding orders in the production system of the in-house produced module. Weprove monotonicity properties of this policy and show optimality. Furthermore,we conduct a computational experiment to evaluate how the costs of this policycompare to those of a policy with fixed base-stock levels and show that averagesavings of 17% are attained.

Synchronization in a Two-supplier Assembly System: Combining a Fixed Lead-time Module with Capacitated Make-to-Order Production