| Because physical properties of acceptable raw material can vary, the actual quantity of raw material required in production depends not only on the size of the order being produced, but on the actual properties of those raw materials. The result is a dynamic bill of material which is defined as a listing of all raw materials required for a product's manufacture where the quantity of each raw material is stochastic, with a known probability distribution, rather than deterministic.; This research assumes that a raw material's physical properties will affect its usage in blending all products the same way, that is, if twice as much raw material is needed to make a particular product, then all products using that raw material will require twice as much of that raw material during production. The problem becomes one of lot size determination when ordering raw material with varying quality characteristics.; The basic research question posed in this study dealt with the performance characteristics of each of the five raw material ordering methods. Based on raw material and finished goods inventory levels, raw material ordering cost, setup time, units placed on backorder and total cost, the performance of each planning response was identified.; A simulation model was developed to compare the performance of the planning responses to raw material variability. It was a single machine blending process with feedback to the planning system for corrective action.; Endogenous factors, those factors under the control of the planning system, included the service level of finished goods safety stock and the choice of raw material planning method. Exogenous variables identified and incorporated in the experiment included the holding cost for finished goods and raw materials, the penalty assigned to units placed on backorder, the cost of ordering raw materials, the setup time required by the production process and a measure of raw material variability.; The results of this study indicate relatively poor performance of the modified economic order quantity method and ineffectiveness of finished goods safety stock as a way of responding to raw material variability. The remaining raw material planning methods, modified lot-for-lot and stochastic dynamic programming provided comparable performance. (Abstract shortened with permission of author.)... |
