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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

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Manufacturing and Distribution Strategies for Volatile and Cyclical Customer Demand

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  1. 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

  2. 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.

  3. 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

  4. 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.

  5. 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

  6. Model output: Labor on payroll

  7. Model output: Production

  8. Model output: % Demand missed

  9. 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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