Selecting make-to-stock and postponement policies for different products in a chemical plant: A case study using discrete event simulation

We present a guideline for selecting the inventory management policy for a specialty chemical plant that produces products with limited shelf life, by producing multiple grades of bulk chemical and packaging them into a large variety of bottles. The policy for each product was selected based on a cost-benefit analysis, using the multiple objectives of maximizing the on time order fulfillment, minimizing the production (cleaning and shelf life expiration) and inventory costs. To generate realistic cost estimates, we developed a discrete event simulation model that included demand variability, planning and scheduling policies, and operational details. We evaluated three different policies: make-to-stock (MTS), postponement, and combined MTS/postponement. We also evaluated different storage media and optimized the number of storage units for products selected for postponement. A combined MTS/postponement policy, in which postponement is applied to products with low to medium demand and high expiration provided lowest costs without significantly impacting the customer on time order fulfillment. For all other products, a MTS policy is applied to maximize order fulfillment on time, reduce cleaning costs and to reduce number of storage units.