Managing cyclic inventories

Cyclic inventory is the buffer following a machine that cycles over a set of products, each of which is subsequently consumed in a continuous manner. Scheduling such a machine is interesting when the changeover times from one product to another are non-trivial – which is generally the case. This problem has a substantial literature, but the common practices of “lot-splitting” and “maximization of utilization” suggest that many practitioners still do not fully understand the principles of cyclic inventory. This paper is a tutorial that demonstrates those principles. We show that cyclic inventory is directly proportional to cycle length, which in turn is directly proportional to total changeover time, and inversely proportional to machine utilization. We demonstrate the virtue of “maximum changeover policies” in minimizing cyclic inventory – and the difficulty in making the transition to an increased level of demand. In so doing, we explicate the different roles of cyclic inventory, transitional inventory, and safety stock. We demonstrate the interdependence of the products in the cycle – the lot-size for one product cannot be set independently of the remaining products. We also give necessary conditions for consideration of improper schedules (i.e., where a product can appear more than once in the cycle), and demonstrate that both lot-splitting and maximization of utilization are devastatingly counter-productive when changeover time is non-trivial.