Frequency approach for treating capacity-constrained multilevel production

Abstract

An idea about how to tackle and solve the difficult problem of determining economic order quantities in capacity-constrained multilevel production is presented. The idea is based on frequencies during a variable time interval as variables instead of explicit order quantities. The presented heuristic model handles assumed constant demand for several items and calculates fixed-order quantities assumed to be possible to repeat in a cyclic pattern. In the model, every item is supposed to be manufactured at least once per year, or during another maximum period, to stop order quantities that are too large and therefore hinder inventories that are exceedingly large and/or obsolete. During a time interval, it was decided how many times each item should be produced. The paper starts with a common frequency for all items, i.e. the highest frequency possible for all items during this maximum time interval considering the capacity restrictions of the different machines. Thereafter, the frequency for items with high set-up costs compared with the inventory holding costs is reduced if it decreases the total cost of set-ups and inventory holding. Only frequencies in multiples of two are used to make a cycle policy easier to establish, to prevent remnant stocks and to make the used cost approximation fit more accurately.

Acknowledgements

Work was supported by Jan Wallander and Tom Hedelius Research Found-ations, Project ‘J01-23’.