A robust hierarchical production planning for a capacitated two-stage production system

In this paper, we propose a robust hierarchical production planning approach for a two-stage real world capacitated production system operating in an uncertain environment. The first stage of the system produces a set of semi-finished products having relatively stable annual demands, and the second finishing stage produces finished products having highly variable weekly demands. The fixed production setup costs incurred at the first stage are considerably high. Fixed production setup costs incurred at the second stage are fairly small compared to those of the first stage. We propose an integrated hierarchical planning model, where semi-finished products from the first stage (i.e. the aggregate level) are disaggregated into finished products to be produced in the second stage (i.e. the operational level). As a result of the relatively stable demands and the high setup costs experienced at the first stage, a cyclical aggregate planning model is proposed for production planning at the upper level of the hierarchical plan. Based on this aggregate plan, a modified periodic review policy is then proposed for production planning at the lower level. Finally, a coupling plan, linking the two planning levels, is proposed to ensure the feasibility of the disaggregation process at every period.