Control of Production-Inventory Systems with  Multiple Echelons
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Control of Production-Inventory Systems with Multiple Echelons. Characteristics. Demand is recurrent and stationary (in distribution) over time Demand occurs continuously over time with stochastic inter-arrival times between consecutive orders

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Characteristics Echelons

  • Demand is recurrent and stationary (in distribution) over time

  • Demand occurs continuously over time with stochastic inter-arrival times between consecutive orders

  • The production and inventory systems are tightly linked

  • The production system has a finite capacity with stochastic production times

  • Inventory replenishment leadtimes are load-dependent

  • Inventory is reviewed continuously


Example 1: A Single Stage Echelons

Production-Inventory System

Customer demand

Raw material

Work-in-process

Production system

Finished goods

inventory


Example 2: A Series System Echelons

Customer

demand

Stage N-1

Stage N

Stage 1


Example 3: An Assembly System Echelons

Customer

demand

External supply


The State of the System Echelons

  • The state of the system is described by the amount of finished-goods inventory (FGI) and work-in-process (WIP) at every stage.

  • The state of the system changes with either the arrival of an order or the completion of production at one of the stages.


Costs, Decisions, and Objectives Echelons

  • Example costs:

    • inventory holding cost at every stage

    • backorder cost at stage N

  • Decisions (actions): Given the current state of the system, which of the production stages should be producing.

  • Example objectives:

    • Expected total cost (sum of inventory holding and backorder costs)

    • Inventory holding cost subject to a service level constraint


  • The Optimal Production Policy Echelons

    • Decisions at any stage affect all other stages.

    • The optimal decision at any stage must take into account the current state of the entire system.

    • Solutions that decompose the problem into problems involving single stages can lead to bad decisions.

    • Coordination among the stages is important.


    Challenges Echelons

    • The optimal policy is difficult to characterize in general and the optimal cost difficult to compute.

    • In some cases, the problem can be formulated as a stochastic optimal control and solved using dynamic programming.

    • For multi-dimensional problems (several stages, several products, and complex routing structures), the problem becomes computationally intractable.


    Heuristic (but Common) Policies Echelons

    • Make-to-order (MTO) systems

    • Make-to-stock (MTS) system with only FGI inventory

    • MTS systems with inventories at every stage

    • MTS/MTO systems with inventory at only stage

    • MTS systems with limits on WIP (pull systems such as Kanban, extended Kanban, and CONWIP)


    MTO Systems Echelons

    Customer

    demand

    Stage N-1

    Stage N

    Stage 1


    MTO Systems Echelons

    Appropriate when

    • WIP and FGI holding costs are high

    • backorder costs are low (customers tolerate delays)

    • production capacity is uniformly high

    • product variety is high with little commonalities among products


    MTO Systems with Limits on WIP Echelons

    • Limits on total WIP

    • Limits on WIP at individual stages (or groups of stages)

    Total WIP K

    WIPN-1kN-1

    WIPNkN

    WIP1k1


    MTO/MTS Systems Echelons

    Customer

    demand

    Stage 5

    Stage 1

    Stage 2

    Stage 3

    Stage 4

    Make-to-stock segment

    Make-to-order segment


    MTO/MTS Systems (Continued…) Echelons

    Appropriate when

    • capacity is tight upstream in the production process

    • there is an identifiable bottleneck

    • holding costs are high downstream in the production process

    • customers tolerate some amount of delay

    • there are multiple products with common components or processes (e.g., MTO/MTS systems enable delayed differentiation)


    Base stock systems
    Base-Stock Systems Echelons

    Customer

    demand

    s1

    sN-1

    sN

    Demand signal


    Base stock systems1
    Base-Stock Systems Echelons

    Each stage manages an output buffer according to a base-stock policy with base-stock level si at stage i (each stage keeps a constant inventory position IPi= si = Ii + IOi – Bi).

    Production at each stage occurs only in response to external demand (or equivalently demand from a downstream stage).

    If demand at any stage cannot be satisfied from on-hand inventory, it is backordered.

    Base-stock levels at each stage can be optimized to reflect the corresponding holding costs and production capacity.


    Advantages of base stock systems
    Advantages of Base-Stock Systems Echelons

    Production is driven by actual consumption of finished goods.

    Backlogging at every stage

    reduces the likelihood that the bottleneck is starved for parts

    allows the bottleneck to occasionally work ahead of downstream stages (the bottleneck is never blocked)

    maximizes utilization of production resources by eliminating blocking and starvation


    Disadvantages of base stock systems
    Disadvantages of Base-Stock Systems Echelons

    Backlogging at every stage could lead to excessive work-in-process (WIP).

    Every stage responds to consumption of finished goods instead of consumption of its output by the immediate downstream stages.

    Production stages are decoupled, making it more difficult to uncover sources of inefficiency in the system.


    Reorder point order quantity systems
    Reorder Point/Order Quantity Systems Echelons

    Each stage manages an output buffer according to a (Q, r) policy with parameters ri and Qi at stage i.

    By placing orders in batches setup costs and setup times are reduced.

    Similar advantages and disadvantages to base-stock policy.


    Kanban systems
    Kanban Systems Echelons

    • A “kanban” is a sign-board or card in Japanese and is the name of the flow control system developed by Toyota.


    Kanban systems continued
    Kanban Systems (Continued…) Echelons

    Similar to a base-stock system, except that backlogged demand does not trigger a replenishment order.

    The maximum amount of inventory on order (WIP) at every stage is limited to the maximum output buffer size at that stage.

    Total WIP in the system is capped.


    Implementation
    Implementation Echelons

    • One card systems

    • Two card systems


    One card kanban
    One-Card Kanban Echelons

    Outbound stockpoint

    Outbound stockpoint

    Completed parts with cards enter outbound stockpoint.

    Production

    cards

    When stock is removed, place production card in hold box.

    Production card authorizes start of work.


    Two card kanban
    Two-Card Kanban Echelons

    Inbound stockpoint

    Outbound stockpoint

    Move stock to inbound stock point.

    Move card authorizes pickup of parts.

    When stock is removed, place production card in hold box.

    Remove move card and place in hold box.

    Production cards

    Move cards

    Production card authorizes start of work.


    Signaling
    Signaling Echelons

    • Cards

    • Lights & sounds

    • Electronic messages

    • Automation


    The main design issue
    The Main Design Issue Echelons

    • How many Kanbans should we have at each stage of the process and for each product?


    Tradeoffs
    Tradeoffs Echelons

    • Too many Kanbans lead to too much WIP and long cycle times.

    • Too few Kanbans lead to lower throughput and vulnerability to demand and process variability.


    Advantages of kanban
    Advantages of Kanban Echelons

    • Attempts to coordinate production at various stages

    • Limits WIP accumulation at all production stages

    • Improves performance predictability and consistency

    • Fosters communication between neighboring processes

    • Encourages line balancing and process variability reduction


    Limitations of kanban
    Limitations of Kanban Echelons

    • Possibility of starving bottlenecks

    • Vulnerable to fluctuations in demand volume and product mix

    • Vulnerable to process variability and machine breakdowns

    • Vulnerability to raw material shortages and variability in supplier lead times

    • Ideal for high volume and low variety manufacturing (becomes unpractical when product variety is high)


    Constant work in process conwip system
    Constant Work-In-Process (CONWIP) System Echelons

    Customer

    demand

    Total WIP K

    • Basic CONWIP

    • Multi-loop CONWIP

    • Kanban


    Conwip mechanics
    CONWIP Mechanics Echelons

    • A new job is introduced whenever one completes

    • The next job is selected from a dispatching list based on current demand

    • The mix of jobs is not fixed

    • Priorities can be assigned to jobs in the dispatching list

    • WIP level can be dynamically adjusted


    Advantages of CONWIP Systems Echelons

    • Accommodates multiple products and low production volumes

    • Protects throughput and prevents bottleneck starvation

    • Less vulnerable to demand and process variability

    • Allows expediting and infrequent orders

    • Less vulnerable to breakdowns


    Challenges Echelons

    • Difficulties in setting WIP limits and adjusting WIP levels with changes in product mix (a possible fix is to limit work-content rather than work-in-process).

    • Bottleneck starvation due to upstream failures.

    • Premature production due to early release.

    • Lack of coordination within the CONWIP loop.


    Other Systems Echelons

    • Pull from the bottleneck systems (e.g., drum-buffer-rope, DBR)

    • Generalized Kanban Systems


    Generalized Kanban System Echelons

    • Each stage has two parameters, si and ki

    • si: maximum inventory level (Ii) that stage i can keep in its output buffer of stage i

    • ki: maximum of number production orders (IOi) that stage i can place


    Generalized Kanban System Echelons

    • Each stage has two parameters, si and ki

    • si: maximum inventory level (Ii) that stage i can keep in its output buffer of stage i

    • ki: maximum of number production orders (IOi) that stage i can place


    Generalized Kanban System Echelons

    • Each stage has two parameters, si and ki

    • si: maximum inventory level (Ii) that stage i can keep in its output buffer of stage i

    • ki: maximum of number production orders (IOi) that stage i can place

      • si = ki , for all i Kanban

      • si > 0, ki = ∞, for all i  Base-stock

      • si = 0, ki = ∞, for all i MTO

      • sN> 0, kN< ∞; si = 0, ki = ∞, for i  N CONWIP

      • sbottleneck> 0, si = 0 for i  bottleneck,ki = ∞ for all i PFB


    Push versus Pull Echelons

    Many competing definitions, including the following:

    • Definition 1: A pull system is a one where production is driven by actual inventory consumption (or immediate need for consumption).

    • Definition 2: A pull system is one where WIP is kept fixed or bounded by a finite (usually small) upper limit.


    Push or Pull? Echelons

    • MTO

    • Base-stock

    • Kanban

    • CONWIP

    • PFB


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