Resolving uncertainty in manufacturing systems

This paper examines the effectiveness of three commonly practiced methods used to resolve uncertainty in multi-stage manufacturing systems: safety stock under regenerative material requirements planning (MRP) updates, safety capacity under regenerative MRP updates, and net change MRP updates, i.e., continuous rather than regenerative (periodic) updates. The use of safety stock reflects a decision to permanently store materials and labor capacity in the form of inventory. When unexpected shortages arise between regenerative MRP updates, safety stock may be depleted but it will be replenished in subsequent periods. The second method, safety capacity, overstates the MRP capacity requirements at the individual work centers by a prescribed amount of direct labor. Safety capacity either will be allocated to unanticipated requirements which arise between MRP regenerations or will be spent as idle time. The third method, net change, offers a means of dealing with uncertainty by rescheduling instead of buffering, provided there is sufficient lead time to execute the changes in the material and capacity plans.Much of the inventory management research has addressed the use of safety stock as a buffer against uncertainty for a single product and manufacturing stage. However, there has been no work which evaluates the performance of safety stock relative to other resolution methods such as safety capacity or more frequent planning revisions. In this paper, a simulation model of a multi-stage (fabrication and assembly) process is used to characterize the behavior of the three resolution methods when errors are present in the demand and time standard estimates. Four end products are completed at an assembly center and altogether, the end products require the fabrication of twelve component parts in a job shop which contains eight work centers. In addition to the examination of the three methods under different sources and levels of uncertainty, different levels of bill of material commonality, MRP planned lead times, MRP lot sizes, equipment set-up times and priority dispatching rules are considered in the experimental design.The simulation results indicate that the choice among methods depends upon the source of uncertainty, and costs related to regular time employment, employment changes, equipment set ups and materials investment. For example, the choice between safety stock and safety capacity represents a compromise between materials investment and regular time employment costs. The net change method is not designed to deal effectively with time standard errors, although its use may be preferred over the two buffering alternatives when errors are present in the demand forecasts and when the costs of employment changes and equipment set ups are low. The simulation results also indicate that regardless of the method used, efforts to improve forecasts of demands or processing times may be justified by corresponding improvements in manufacturing performance.