Managing partially controllable raw material acquisition and outsourcing in production planning

This paper studies a single-item production planning problem for a manufacturing firm. Besides being able to acquire raw material from an external supplier, the firm may also face an incoming stream of internally supplied raw material. In addition, outsourcing may serve as an alternative to in-house production for the firm to satisfy its demands. Attention is focused on the case where acquisition, production, and outsourcing costs are setup-linear and inventory holding costs are linear. For this case, polynomial algorithms are presented for some situations and the NP-hardness of other problem is shown. A computational study is used to show the competitiveness of the proposed heuristic.