Setting Planning Buffers in MRP Driven Manufacturing Networks Considering their Implications on Safety Stock Cost

Manufacturing companies face an ongoing trend towards more complex production and distribution networks that evolve dynamically, e.g. due to frequent changes in the product assortment. The production and distribution systems of many companies that produce large quantities of customer anonymous products are run according to the established material requirements planning (MRP) logic. The selection of the right planning parameters and their continuous adaptation in a dynamic environment is crucial for a cost efficient manufacturing process. We consider a multi-stage manufacturing system with sequence dependent setup cost, where demands and demand dates are calculated according to the MRP logic. The throughput time of each production stage consists of the actual processing time and a planning buffer as an additional time buffer to create optimisation potential for production sequencing to reduce setup costs. These time buffers also increase safety stocks held on the considered production stage or any subsequent production or distribution stage due to increased replenishment lead times. An optimisation model is formulated to determine cost optimal planning buffers with consideration of the inventory cost incurred by increasing safety stock. The setup costs incurred are incorporated via the determination of lot sizes on an aggregate level. We identify two major subproblems related to the estimation of average setup costs for different planning buffers and the determination of safety stock costs and propose adequate solutions. The model's validity is shown via a case study application for a cloth production process of an international household product manufacturer.