A queuing model on supply chain with the form postponement strategy

•We model the supply chain with form postponement as two-stage queuing network.•CODP position and base-stock level are jointly optimized.•We propose a normal distribution approximation for the objective function.•We give a quick algorithm for finding the optimal policy of the supply chain. The form postponement (FP) strategy is an important strategy for manufacturing firms to utilize to achieve a quick response to customer needs while keeping low inventory levels of finished products. It is an important and difficult task to design a supply chain that uses FP strategy to mitigate the conflict between inventory level and service level. To this end, we develop a two-stage tandem queuing network to model the supply chain. The first stage is the manufacturing process of the undifferentiated semi-finished product, which is produced on a Make-To-Stock basis: the inventory is controlled by base-stock policy. The second stage is the customization process based on customers’ specified requirements. There are two types of order: ordinary order and special order. The former can be met by customizing from semi-finished product, while the latter must be entirely customized beginning from the first stage. The customer orders arrive according to a Poisson process. We first derive the inventory level and fill rate, and then present a total cost model. It turns out that the model is intractable due to the Poisson distribution in the objective function. To analytically solve the problem, we use normal distribution as an approximation of the Poisson distribution, which works well when the parameter of the Poisson distribution is quite large. Finally, some numerical experiments are conducted and managerial insights are offered based on the numerical results.