Design of an automated shop floor material handling system with inventory considerations

Material handling systems are almost always intertwined with the production system they serve, but problems at this interface are rarely considered together. This paper develops a model that explicitly considers the costs of material handling and inventory to simultaneously design a material handling system and set shop floor inventory policy. The research was inspired by material handling problems we observed at computer manufacturing companies such as Apple Computer and Hewlett Packard Company. Shop floor inventory policies are often a result of trial and error or simple usage calculations—and material handling system design is usually addressed given an existing inventory policy. However, a tradeoff exists between shop floor inventory policy (reorder quantities and safety stock amounts) and demands for material handling. Inventory decisions can have a particularly large impact on cost when an automated material handling system, such as an automated guided vehicle system, is used to deliver materials. This paper develops a material handling/inventory system design model that is a nonlinear mixed integer program with nonlinear constraints, and presents a solution approach based on decomposition. Computational results show that simultaneous consideration of inventory policy and material handling system design can lead to significant reductions in overall production cost.