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Planned lead times, safety stocks, and lot sizing in capacitated production networks

Kunal Kumar and Tarik Aouam (UGent)
(2016)
Author
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Abstract
The optimization of planning parameters in capacitated production networks facing supply and demand uncertainty is considered. Each stage includes a series of a raw-material inventory, an M/M/1 production workstation with batching and setup time, and a finished-goods inventory. The finished goods inventory operates under a periodic review base-stock policy, with a common review period between stages. Stages are coordinated through quoted guaranteed service times. In this setting, the size and placement of decoupling safety stocks depend on a replenishment period that includes random production cycle times. Batching or lot-sizing decisions have congestion effects, due to limited capacity, which affects mean and variance of production cycle times. To control the variability inherent in production cycle times, we use a production control policy with planned lead times and flexible capacity (overtime or subcontracting). Based on a planned lead time, the control policy sets the production rate proportional to the workload, and unlimited flexible capacity processes workload exceeding workstation capacity. In this way, the promised service time is guaranteed. While higher planned lead-times reduce variability and increase inventory in the system, production flexibility incurs high costs. The problem of jointly setting safety stocks, lot-sizing and planned lead times to minimize the total operational cost subject to service time constraints is formulated and solved. We establish bounds for lot sizes and planned lead times and use these bounds to develop a dynamic program that solves the problem in polynomial time. Numerical experiments demonstrate the efficiency of the proposed algorithm and a sensitivity analysis on key parameters is carried out to provide practical insights.
Keywords
Production and inventory systems, supply chain management

Citation

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MLA
Kumar, Kunal, and Tarik Aouam. Planned Lead Times, Safety Stocks, and Lot Sizing in Capacitated Production Networks. 2016.
APA
Kumar, K., & Aouam, T. (2016). Planned lead times, safety stocks, and lot sizing in capacitated production networks. Presented at the International Conference on Operations Research - OR2016, Hamburg.
Chicago author-date
Kumar, Kunal, and Tarik Aouam. 2016. “Planned Lead Times, Safety Stocks, and Lot Sizing in Capacitated Production Networks.” In .
Chicago author-date (all authors)
Kumar, Kunal, and Tarik Aouam. 2016. “Planned Lead Times, Safety Stocks, and Lot Sizing in Capacitated Production Networks.” In .
Vancouver
1.
Kumar K, Aouam T. Planned lead times, safety stocks, and lot sizing in capacitated production networks. In 2016.
IEEE
[1]
K. Kumar and T. Aouam, “Planned lead times, safety stocks, and lot sizing in capacitated production networks,” presented at the International Conference on Operations Research - OR2016, Hamburg, 2016.
@inproceedings{8519094,
  abstract     = {{The optimization of planning parameters in capacitated production networks facing supply and demand uncertainty is considered. Each stage includes a series of a raw-material inventory, an M/M/1 production workstation with batching and setup time, and a finished-goods inventory. The finished goods inventory operates under a periodic review base-stock policy, with a common review period between stages. Stages are coordinated through quoted guaranteed service times. In this setting, the size and placement of decoupling safety stocks depend on a replenishment period that includes random production cycle times. Batching or lot-sizing decisions have congestion effects, due to limited capacity, which affects mean and variance of production cycle times. To control the variability inherent in production cycle times, we use a production control policy with planned lead times and flexible capacity (overtime or subcontracting). Based on a planned lead time, the control policy sets the production rate proportional to the workload, and unlimited flexible capacity processes workload exceeding workstation capacity. In this way, the promised service time is guaranteed. While higher planned lead-times reduce variability and increase inventory in the system, production flexibility incurs high costs. The problem of jointly setting safety stocks, lot-sizing and planned lead times to minimize the total operational cost subject to service time constraints is formulated and solved. We establish bounds for lot sizes and planned lead times and use these bounds to develop a dynamic program that solves the problem in polynomial time. Numerical experiments demonstrate the efficiency of the proposed algorithm and a sensitivity analysis on key parameters is carried out to provide practical insights.}},
  author       = {{Kumar, Kunal and Aouam, Tarik}},
  keywords     = {{Production and inventory systems,supply chain management}},
  language     = {{und}},
  location     = {{Hamburg}},
  title        = {{Planned lead times, safety stocks, and lot sizing in capacitated production networks}},
  year         = {{2016}},
}