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Effect of limited capacity on optimal planning parameters for a multi-item production system with setup times and advance demand information

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  • Klaus Altendorfer

Abstract

An analytical production/inventory model to optimise the planning parameters lot-size, safety stock and planned lead time is developed for a stochastic single-stage production system with multiple items and limited capacity. Based on queuing analysis, the influence of item specific lot-sizes on the production lead time distribution is modelled. Applying stochastic advance demand information, the expected values for finished-goods-inventory, backorders and service level are explicitly stated. Numerical optimisation is applied to solve the respective cost minimisation problem and a solution heuristic is developed to support this approach. A numerical study provides managerial insights concerning capacity limitation effects on the optimal planning parameters. Higher shop loads, i.e. tighter capacity constraints, are found to significantly increase optimal lot-size and optimal safety stock. Safety stock and planned lead time are substitutes, an increase of both leads to higher FGI and lower backorders, however, the specific trade-off depends on the demand information quality. A sensitivity analysis investigating other (non-) financial system parameters is conducted as well. The main contribution of this paper is that the interaction of different planning parameters, i.e. lot-size, safety stock and planned lead time, for different items is simultaneously studied for a capacity constrained production/inventory system.

Suggested Citation

  • Klaus Altendorfer, 2019. "Effect of limited capacity on optimal planning parameters for a multi-item production system with setup times and advance demand information," International Journal of Production Research, Taylor & Francis Journals, vol. 57(6), pages 1892-1913, March.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:6:p:1892-1913
    DOI: 10.1080/00207543.2018.1511925
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    Cited by:

    1. Barros, Júlio & Cortez, Paulo & Carvalho, M. Sameiro, 2021. "A systematic literature review about dimensioning safety stock under uncertainties and risks in the procurement process," Operations Research Perspectives, Elsevier, vol. 8(C).
    2. Mikhail Y. Kovalyov & Mikhail N. Lukashevich & Erwin Pesch, 2023. "Cost minimizing planning of container inspection and repair in multiple facilities," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(1), pages 181-204, March.
    3. Gonçalves, João N.C. & Sameiro Carvalho, M. & Cortez, Paulo, 2020. "Operations research models and methods for safety stock determination: A review," Operations Research Perspectives, Elsevier, vol. 7(C).

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