Resolving uncertainty in manufacturing systems

This paper examines the effectiveness of three commonly practised 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. Much of the inventory management research has addressed the use of safety stock as a buffer against an 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 multistage (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. 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 material 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.