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Avoiding the capacity cost trap: Three means of smoothing under cyclical production planning

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  • Hedenstierna, Carl Philip T.
  • Disney, Stephen M.

Abstract

Companies tend to set their master production schedule weekly, even when producing and shipping on a daily basis—the term for this is staggered deliveries. This practice is common even when there is no marginal cost of setting a new schedule. We argue that the practice is sound for companies that use the ubiquitous order-up-to (OUT) policy to control production of products with a significant capacity cost. Under these conditions, the length of the order cycle (time between schedule updates) has a damping effect on production, while a unit (daily) order cycle can cause significant capacity costs. We call this the capacity cost trap.

Suggested Citation

  • Hedenstierna, Carl Philip T. & Disney, Stephen M., 2018. "Avoiding the capacity cost trap: Three means of smoothing under cyclical production planning," International Journal of Production Economics, Elsevier, vol. 201(C), pages 149-162.
    • Handle: RePEc:eee:proeco:v:201:y:2018:i:c:p:149-162
    DOI: 10.1016/j.ijpe.2018.04.008
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    References listed on IDEAS

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    1. James Flynn, 2000. "Selecting T for a periodic review inventory model with staggered deliveries," Naval Research Logistics (NRL), John Wiley & Sons, vol. 47(4), pages 329-352, June.
    2. Hosoda, Takamichi & Disney, Stephen M., 2012. "On the replenishment policy when the market demand information is lagged," International Journal of Production Economics, Elsevier, vol. 135(1), pages 458-467.
    3. Prak, Dennis & Teunter, Ruud & Riezebos, Jan, 2015. "Periodic review and continuous ordering," European Journal of Operational Research, Elsevier, vol. 242(3), pages 820-827.
    4. Hedenstierna, Carl Philip T. & Disney, Stephen M., 2016. "Inventory performance under staggered deliveries and autocorrelated demand," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1082-1091.
    5. Borja Ponte & Xun Wang & David de la Fuente & Stephen M. Disney, 2017. "Exploring nonlinear supply chains: the dynamics of capacity constraints," International Journal of Production Research, Taylor & Francis Journals, vol. 55(14), pages 4053-4067, July.
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    7. Chiang, Chi, 2009. "A periodic review replenishment model with a refined delivery scenario," International Journal of Production Economics, Elsevier, vol. 118(1), pages 253-259, March.
    8. James Flynn, 2001. "Selecting review periods for a coordinated multi‐item inventory model with staggered deliveries," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(5), pages 430-449, August.
    9. Anantaram Balakrishnan & Joseph Geunes & Michael S. Pangburn, 2004. "Coordinating Supply Chains by Controlling Upstream Variability Propagation," Manufacturing & Service Operations Management, INFORMS, vol. 6(2), pages 163-183, July.
    10. Dejonckheere, J. & Disney, S. M. & Lambrecht, M. R. & Towill, D. R., 2003. "Measuring and avoiding the bullwhip effect: A control theoretic approach," European Journal of Operational Research, Elsevier, vol. 147(3), pages 567-590, June.
    11. Chiang, Chi, 2001. "Order splitting under periodic review inventory systems," International Journal of Production Economics, Elsevier, vol. 70(1), pages 67-76, March.
    12. James Flynn & Stanley Garstka, 1997. "The Optimal Review Period in a Dynamic Inventory Model," Operations Research, INFORMS, vol. 45(5), pages 736-750, October.
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    1. Estefania Tobon-Valencia & Samir Lamouri & Robert Pellerin & Alexandre Moeuf, 2022. "Modeling of the Master Production Schedule for the Digital Transition of Manufacturing SMEs in the Context of Industry 4.0," Sustainability, MDPI, vol. 14(19), pages 1-28, October.

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