Determining inventory, purchasing and cutting policies to manage imperfect and perishable raw material

Abstract

ABSTRACT Several industries deal with imperfect and perishable raw materials that need to be cut in order to assemble products. Managing the purchasing, cutting, and sequencing decisions is a challenging problem that spans both inventory control and production process management, where decisions are usually optimised separately. In this research we develop a dynamic programming model that determines these joint decisions. The inspiration comes from furniture companies where the raw material are sheets of plywood that may contain imperfections that need to be avoided when cutting pieces to build the assembled furniture. We evaluate decisions regarding the layout of pieces onto the plywood, dispatching policies of ordered furniture , and the quality of the raw material. The model is useful to perform cost analysis for different scenarios. Variations on the expected demand, purchasing, ordering, disposal, holding costs and initial inventory are considered. Experiments conclude that focusing in quality becomes more important than the age of the plywood sheet if the companies implement a production flow that cuts and sorts all pieces before assembling the furniture. Cost analysis confirms that a just-in-time policy in which little inventory is kept results in important savings when compared with the standard operation of the companies.