Inventory Control at AQ Electric Suzhou

This report details the process and result of developing a mathematical inventory control model to be use by AQ Electric Suzhou. The mathematical model was written in Microsoft Excels inherent programming language Visual Basic and utilizes printouts such as sales history, bill of materials, component data etc. from AQ Electric Suzhous ERP system Monitor to derive a demand history for each component. Each component is then given a compound Poisson lead time demand distribution with an optimization of reorder point in a (R,Q) continuous review inventory system with regards to service level and maximum inventory constraints. The results were that AQ Electric Suzhou would find it difficult to achieve the target on time delivery and target inventory turn rate simultaneously without changing input parameters such as minimum order quantities and lead times

Inventory control of finished goods for the aftermarket

TitanX Engine Cooling is a global supplier of powertrain cooling solutions to commercial vehicles, both for OEMs and the independent aftermarket. The company with annual sales of over 1.6 billion SEK (US$ 192 million) has some 800 employees worldwide. TitanX is headquartered in Gothenburg, Sweden and has manufacturing sites in Sweden, USA, Brazil, China and Mexico. Its manufacturing facilities are designed and operated with a strong and continuous application of lean manufacturing principles, and they perceive themselves as a very flexible supplier. The production sites have a high level of vertical integration, including the manufacturing of key critical components to ensure the highest quality results. The production operations are continuously adjusted to meet variations in customer demand. The vision is to be the number one global supplier of powertrain cooling solutions to the commercial vehicle industry. The facility in Sölvesborg consists of three zones; a raw material warehouse, a shop floor, and a finished goods warehouse. TitanX generally keeps high inventory levels of raw material and finished goods. An important reason for this is the marketing strategy to increase the current market share above 30% of the independent aftermarket for truck engine cooling systems. Therefore, high customer service levels and high efficiency are key performance measures that drive high capacity and stock levels

Multi-echelon Inventory Control with Integrated Shipment Decisions

Rising fuel prices and increasing environmental awareness emphasizes the importance of the transportation aspect in logistics. This calls for new improved inventory control methods that consider the effects of shipment strategies in a more realistic manner. This thesis, consisting of an introduction and three scientific papers, studies how shipment decisions can be included in the inventory control of distribution systems. The systems studied in the papers consist of a central warehouse that supplies goods to a number of retailers that face stochastic customer demand. The first two papers consider a system where shipments from the central warehouse are consolidated to groups of retailers periodically. This means that replenishment orders of one or several items from different retailers are consolidated and dispatched at certain time intervals. By doing so, transportation cost savings can be realized and emissions can be reduced. This is achieved by filling the vehicles or load carriers to a higher extent and by using cheaper and more environmentally friendly, transportation modes. The first paper explicitly focuses on how to include more realistic transportation costs and emissions. This is done by obtaining the distribution of the size of an arbitrary shipment leaving the central warehouse (directly affected by the shipment frequency). It is thereby easy to evaluate any system where the transportation costs and emissions are dependent on the size of the shipment. The paper also provides a detailed analysis of a system where there is an opportunity to reserve shipment capacity on an intermodal truck-train-truck solution to at least one of the retailer groups. For this system it is shown how to jointly optimize the shipment intervals, the reserved capacities on the intermodal transportation modes and the reorder points in the system. The presented optimization procedure is applicable in three scenarios; (i) the emissions are not considered, (ii) there is a fixed cost per unit of emission, and (iii) there is a constraint on the maximum emissions per time unit. The second paper extends the analysis of a similar time-based shipment consolidation system to handle compound Poisson demand (instead of pure Poisson demand). This system has a simpler transportation cost structure, but the more general demand structure makes the model applicable for a broader array of products. The paper also extends the model to handle fill rate constraints, which further improves the practical applicability. The cost analysis is performed with a new methodology, based on the nominal inventory position. This variable is a helpful tool for analyzing the dynamics of distribution systems. Another system where this tool can be used is studied in the third paper. In this paper all stock points use installation stock (R,Q) ordering policies (batch ordering). This implies that situations can occur when only part of a requested retailer order is available at the central warehouse. The existing literature predominantly assumes that the available units are shipped immediately and the remaining units are shipped as soon as they arrive to the central warehouse, referred to as partial delivery. An alternative is to wait until the entire order is available before dispatching, referred to as complete delivery. The paper introduces a cost for splitting the order and evaluates three delivery policies; the PD policy (only partial deliveries are used), the CD policy (only complete deliveries are used), and the state-dependent MSD policy (an optimization between a partial and a complete delivery is performed for each delivery). The MSD policy is proven to perform better than both the PD and the CD policy. In a numerical study it is shown that significant savings can be made by using the MSD policy

Exact Methods for Multi-echelon Inventory Control : Incorporating Shipment Decisions and Detailed Demand Information

Recent advances in information technologies and an increased environmental awareness have altered the prerequisites for successful logistics. For companies operating on a global market, inventory control of distribution systems is often an essential part of their logistics planning. In this context, the research objective of this thesis is: To develop exact methods for stochastic inventory control of multi-echelon distribution systems incorporating shipment decisions and/or detailed demand information.The thesis consists of five scientific papers (Paper I, II, III, IV and V) preceded by a summarizing introduction. All papers study systems with a central warehouse supplying a number of non-identical local warehouses (retailers) facing stochastic demand. For given replenishment policies, the papers provide exact expressions for evaluating the expected long-run system behavior (e.g., distributions of backorders, inventory levels, shipment sizes and expected costs) and present optimization procedures for the control variables. Paper I and II consider systems where shipments from the central warehouse are consolidated to groups of retailers and dispatched periodically. By doing so, economies of scale for the transports can be reached, reducing both transportation costs and emissions. Paper I assumes Poisson customer demand and considers volume-dependent transportation costs and emissions. The model involves the possibility to reserve intermodal (train) capacity in combination with truck transports available on demand. For this system, the expected inventory costs, the expected transportation costs and the expected transport emissions are determined. Joint optimization procedures for the shipment intervals, the capacity reservation quantities, the reorder points and order-up-to levels in the system are provided, with or without emission considerations. Paper II analyses the expected costs of the same system for compound Poisson demand (where customer demand sizes may vary), but with only one transportation mode and fixed transportation costs per shipment. It also shows how to handle fill rate constraints. Paper III studies a system where all stock points use installation stock (R,Q) ordering policies (batch ordering). This implies that situations can occur when only part of a requested retailer order is available at the central warehouse. In these situations, the models in existing literature predominantly assume that available units are shipped immediately (partial delivery). An alternative is to wait until the entire order is available before dispatching (complete delivery). The paper introduces a cost for splitting the order and evaluates a system where optimal choices between partial and complete deliveries are made for all orders. In a numerical study it is shown that significant savings can be made by using this policy compared to systems which exclusively use either partial or complete deliveries. Paper IV shows how companies can benefit from detailed information about their customer demand. In a continuous review base stock system, the customer demand is modeled with independent compound renewal processes at the retailers. This means that the customer inter-arrival times may follow any continuous distribution and the demand sizes may follow any discrete distribution. A numerical study shows that this model can achieve substantial savings compared to models using the common assumption of exponential customer inter-arrival times. Paper V is a short technical note that extends the scope of analysis for several existing stochastic multi-echelon inventory models. These models analyze the expected costs without first determining the inventory level distribution. By showing how these distributions can be obtained from the expected cost functions, this note facilitates the analysis of several service measures, including the ready rate and the fill rate

Multilocation Inventory Systems With Centralized Information.

The management of multi-echelon inventory systems has been both an important and challenging research area for many years. The rapid advance in information technology and the emphasis on integrated supply chain management have new implications for the successful operation of distribution systems. This research focuses on the study of some fundamental issues related to the operation of a multilocation inventory system with centralized information. First, we do a comparative analysis to evaluate the overall performance of individual versus centralized ordering policies for a multi-store distribution system where centralized information is available. This study integrates the existing research and clarifies one of the fundamental questions facing inventory managers today: whether or not ordering decisions should be centralized. Next, we consider a multi-store distribution system where emergency transshipments are permitted among these stores. Based on some simplifying assumptions, we develop an integrated model with a joint consideration of inventory and transshipment components. An approximately optimal (s, S) policy is obtained through a dynamic programming technique. This ordering policy is then compared with a simplified policy that assumes free and instantaneous transshipments. We also examine the relative performance of base stock policies for a centralized-ordering distribution system. Numerical studies are provided to give general guidelines for use of the policies

Synchronization and decoupling of plants piloting in a supply chain dedicated to customized mass production.

The synchronization of the production of a manufacturing supplier, who makes alternate components assembled on his industrial customer’s work station with this client’s production specialized in mass production of highly diversified products, must take into account the improvement of their knowledge of the final demand (displacement of the Order Penetration Point) and the distance of some of the suppliers. The customer periodically forwards firm orders to his supplier calculated so as to preclude any production line stoppage. It is necessary that the supplier honor them to ensure the decoupling of the control of these two entities in the supply chain and define the efficiency of synchronization. In the considered context, the supplier also receives all available projected information from the industrial customer (final orders, firm on the short term, and structural characteristics of the final demand beyond). The efficiency of the supplier depends on the proper use of all information, notably when the production cycle of alternate components is longer than the demand cycle. In the study of the customer’s requirements, it is necessary to take into account the batch constraints linked to transportation, which compels the customer to hold safety stocks even though the set up organization guarantees that orders will be duly honored. The determinants of these stocks will be put in evidence. Similarly at the supplier, safety stocks will be necessary if the production process involves grouping in batches.synchronisation de la production dans une chaîne logistique; stock de sécurité; chaîne logistique;

The causes and determination of safety stocks in upstream supply chains for mass production of customized products

In an upstream supply chain dedicated to the mass production of customized products, many sources create production instability: the level and structure of production in the final assembly line, variability of lead times, quality issues, packaging and loading constraints on transportation, demand anticipation, and the synchronization of the flows of components sent, received, and produced. For periodic replenishment systems, each member of the supply chain must have two different safety stocks to prevent some sources of fluctuations: a safety stock of produced components to meet the demand of downstream links and a safety stock of supplied components to ensure its own production. Procedures must take the organizational framework of information and products exchanges into account. The relevance of supply and production rules depends on the relevance of structural information broadcast along the supply chain

Information to share in supply chains dedicated to the mass production of customized products for decentralized management

In an upstream supply chain dedicated to the mass production of customized products, decentralized management can be an efficient and effective method in a steady state in which stochastic characteristics of customers' demands remain stable. However, this is possible only if all echelons that precede the final assembly line use periodic replenishment policies that restrain the stockout risk to a low predetermined probability. The safety stocks' levels are more difficult to define for alternative or optional parts, as well as the components they use, whose demands are weighted sums of random variables, affected by several random factors and organizational constraints. The factors and constraints to consider are not the same for supplied and produced components. The random demand of a component depends on the demand of alternative or optional parts mounted in the final product, through a double transformation involving the bill of materials explosion, which is at the origin of the weighted sum of random variables, and time lags. In the steady state, the knowledge of the probability distribution of that random variable allows for the determination of safety stocks that decouple the management of upstream supply chains. Progressive changes in the steady state require periodic and progressive adaptations of the safety stocks that do not directly depend on the final demand knowledge

An inventory control project in a major Danish company using compound renewal demand models

We describe the development of a framework to compute the optimal inventory policy for a large spare-parts’ distribution centre operation in the RA division of the Danfoss Group in Denmark. The RA division distributes spare parts worldwide for cooling and A/C systems. The warehouse logistics operation is highly automated. However, the procedures for estimating demands and the policies for the inventory control system that were in use at the beginning of the project did not fully match the sophisticated technological standard of the physical system. During the initial phase of the project development we focused on the fitting of suitable demand distributions for spare parts and on the estimation of demand parameters. Demand distributions were chosen from a class of compound renewal distributions. In the next phase, we designed models and algorithmic procedures for determining suitable inventory control variables based on the fitted demand distributions and a service level requirement stated in terms of an order fill rate. Finally, we validated the results of our models against the procedures that had been in use in the company. It was concluded that the new procedures were considerably more consistent with the actual demand processes and with the stated objectives for the distribution centre. We also initiated the implementation and integration of the new procedures into the company’s inventory management systemBase-stock policy; compound distribution; fill rate; inventory control; logistics; stochastic processes