An optimal stock building strategy in a manufacturing company

Abstract

This thesis aims to tackle a demand seasonality problem by building either work-in-process inventory or finished goods inventory before the peak season. A linear programming algorithm is developed to determine the optimal way for stock building in order to satisfy the demand with minimum inventory holding cost. An optimization software ILOG OPL Studio 5.1 is used to solve the LP model to optimality within several seconds. The purpose of the analysis is three fold: (1) to identify the bottleneck processes where the capacities fall short of demand; (2) to generate the optimal stock building policy that minimizes the inventory holding cost; (3) to derive a cost-efficient executable production plan with consideration of the operating labor cost. The strategy outlined can be applied easily in actual manufacturing. This efficient and robust model can be used to obtain optimal stock building policy with various demand and capacity scenarios. It can be a useful tool for the company to develop stock building strategy for future demand with improved installed capacity. Key words: Optimization, linear programming, inventory building policy Disclaimer: Theeontent of the thesis is modified to protect the real identity of the attachment company. Company name and confidential information are omitted.