Order release planning by iterative simulation and linear programming: Theoretical foundation and analysis of its shortcomings

Planning future order releases for complex manufacturing systems with substantial lead times must consider limited capacities and the resulting production smoothing problem as well as the highly nonlinear relationship between capacity utilization, work-in-process and flow times. An important solution approach that has been proposed for this problem is to iterate between an order release model with fixed lead times and a lead time estimation (usually simulation) model that estimates the flow times for given order releases, providing the lead times for the next iteration. However, the convergence of this iterative procedure is highly unpredictable, limiting its practical use.The iterative mechanism is analyzed analytically for simplified formulations of the order release and lead time estimation model. We show that an order release procedure of this type that iterates on the lead times is a dual (price) coordination mechanism whose design does not meet the theoretical requirements, and there is no straightforward way to overcome this. The analysis also provides insights into the results of several numerical studies from the literature and suggests a possible research direction to improve the method.Order release mechanisms of this type are a special case of a broader class of production planning methods that iterate between the production planning and the production scheduling level in order to provide realistic values for lead times and planned capacities. Providing theoretical underpinning for this type of production planning methods is an important research objective, and the paper pursues this direction for the special case of order release.