Composite sourcing policy for multiple products on a single production facility

In this paper, we address the composite sourcing policy of a single production facility where customer's order quantity can be made internally as well as externally. The surplus production capacity within a common production cycle can be utilised for in‐sourcing of demand of other suppliers. We regard the traditional economics lot scheduling problem as a capacity allocation problem. Therefore, the decision problem is to determine the lot sizes as well as the composite sourcing policy for three production modes such as out‐sourcing, in‐sourcing and in‐house making. We develop the mathematical model of the resulting decision problem and propose the solution procedure to determine the economic operating policy.