Manufacturing and distribution strategies for volatile and cyclical customer demand
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OSU02-01. Manufacturing and Distribution Strategies for Volatile and Cyclical Customer Demand. Principal Investigator: Ricki G. Ingalls, Ph.D. Director, Center for Engineering Logistics and Distribution Research Assistant: Rajesh Veliyanallore, Ph.D. Candidate Oklahoma State University

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Manufacturing and Distribution Strategies for Volatile and Cyclical Customer Demand

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Manufacturing and distribution strategies for volatile and cyclical customer demand

OSU02-01

Manufacturing and Distribution Strategies for Volatile and Cyclical Customer Demand

Principal Investigator: Ricki G. Ingalls, Ph.D.

Director, Center for Engineering Logistics and Distribution

Research Assistant: Rajesh Veliyanallore, Ph.D. Candidate

Oklahoma State University

School of Industrial Engineering and Management


The smith tool problem the changing business cycle

The Smith Tool Problem: The Changing Business Cycle

  • The business cycle has traditionally been long:

    • 1 to several years

  • This long boom-bust cycle has allowed the sponsor to fluctuate the use of key resources, such as direct labor and equipment, without incurring burdensome costs.

  • The new business cycle for the sponsor has been greatly shortened to approximately 6-9 months.

    • The new cycle creates several issues that need to be addressed in order to create a competitive advantage.


Scenario approach to model development

Scenario approach to model development

  • The basic model is developed on the lines of scenario approach, which works in a robust manner even under significantly different scenarios

  • Different scenarios under which business may be required to operate in the future are weighed by the probability of occurrence of those scenarios

  • Demand may follow many different patterns over the subsequent time periods

  • The production facility is modeled in terms of 2- stage production system.

  • Products are modeled at an aggregate (or family) level


Model objective make the most money overall

Model objective - make the most money overall

  • Our objective is to maximize the expected profit. The profit for the overall business is weighted by the profit for each scenario.

  • Fixed and variable costs, hiring and firing costs, Regular and OT costs, and backlog and inventory costs are considered.

  • Business constraints like

    • Product sold cannot exceed demand

    • Minimum inventory has to be maintained

    • Machine hours and labor hours cannot exceed the amount available

      are modeled.


Model output

Model output

  • One workforce plan which is the same for all scenarios. This plan is by workforce labor type over time

  • A production plan for each scenario by product over time

  • Machine and labor utilization over time


Model output labor on payroll

Model output: Labor on payroll


Model output production

Model output: Production


Model output demand missed

Model output: % Demand missed


Model advantages

Model Advantages

  • This model is easily scalable to dynamically accommodate changes to any parameter.

  • One workforce plan

  • This will also form the basis for the decision on capacity expansion / reduction and also to have the flexibility to change the firms operation to the dynamic changes in the market place at a faster pace


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