Research Reports from the Department of Operations
Document Type
Report
Publication Date
1-1-1971
Abstract
A company which produces a large number of different products is taken as an example where the production of each item is made alternately in lots on the same facility. Depending on their demand forecast and inventory levels lot sizes determined and produced for order or inventory. Description of the production facilities, production, products groups, their inventory and demand pattern in the past is given and discussed. Problems generally faced in overall planning and scheduling of this kind of a company are identified. A dynamic programming approach for aggregate production capacity decision for the case when aggregate production, inventory and capacity adjustment costs can be obtained from historic data of the company, is given. For formulating a production and inventory policy for each individual product, estimation of means and variance cause of probability distribution governing demand is made from past sales data for a number of sample products. Selection of the form of probability distribution function and in particular gamma and poisson functions are discussed. A short background on Chi-square test is given and goodness of fit of the above mentioned two functions to the past sales data is tested and the results are discussed. Relevant costs affecting the inventory policy to be used for individual products are explained and their character and components and difficulties in measuring these costs are discussed. A procedure to evaluate the shortage costs of the items by considering all the alternative actions that the company and its customers can take in a stockout situation, and estimating associated probabilities and cost of each alternative action, is given. A short discussion of the advantages of different operating policies is made and performance of a heuristic decision rule, where an economic lot size is ordered when the inventory level falls below average monthly demand at the beginning of a period, is tested against actual practice for a sample of seven months. Simulation showed that 41% savings in total cost could have been achieved if this policy had been used. A procedure to find optimum values of S,s for an (S,s) policy when the shortage cost of the item is evaluated through the method given previously, is suggested, which involves numerical inversion of Laplace transform of the integro-differential equations governing the operation of the system. [Paper is not dated, but likely written circa 1971.]
Keywords
Operations research, Stochastic processes, Inventory control, Production planning, Business logistics--Planning, Manufacturing industries--Management, Decision making--Mathematical models, Heuristic algorithms
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 231
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Pekmezciler, C., "A Corporate Production Planning and Inventory Control Policy" (1971). Research Reports from the Department of Operations. 106.
https://commons.case.edu/wsom-ops-reports/106