Finished Goods Research Articles

Consignment inventory management in a closed-loop supply chain for deteriorating items under a carbon cap-and-trade regulation

This paper studies an inventory management problem for a closed-loop supply chain that is operated under a consignment stock policy and subject to a cap-and-trade regulation. The supply chain makes both new products and remanufactured products, considering that new raw materials (NRMs), cores, and finished goods (FGs) suffer from deterioration. Mixed integer nonlinear programming models are established to jointly optimize the production sequence of new products and remanufactured products, number of shipments, shipment interval, batch size of FGs, and production cycle length to minimize the total of production, shipment, inventory, deterioration, and carbon emission costs per unit time. Exploring and using the structural properties of the models, a Taylor-series based method is designed to solve the models. Finally, numerical examples and sensitivity analysis are provided to show the effects of key factors on the operational decisions and on both the economy and environment. Results indicate that the deterioration of NRMs, cores, and FGs triggers the supply chain to run short production cycles while making more frequent shipments under the consignment stock policy. Both the economic and environmental costs increase with the deterioration rates. In addition, raising the carbon-trading price can reduce carbon emissions but increase the economic cost of the supply chain, rendering the urgency in reasonably determining carbon cap and trading price.

The Effect of Experiencing a Catastrophic Event on Inventory Decisions

Low probability high consequence (lp-hc) risk events, such as specific natural disasters, are characterized by limited availability of historical and scientific data. In situations in which data is difficult to obtain, risk assessment becomes a resource intense task, in which managers must partly rely on their own perceptions. Perception based risk management responses are yet often biased by prior exposure to lp-hc events, with entailing financial performance consequences. This study investigates inventory levels, as a typical risk response, of manufacturers in the post recovery-phase of the 2011 Great East Japan Earthquake (GEJE). It considers raw material (RAW), work-in-progress (WIP) and finished goods (FG). We observe a significant buildup of RAW and lagged decreases of WIP and FG after the GEJE. Investigating the relationship between observed responses and firm risk-preferences, some light is shed on the question of whether observed reactions were driven by experiential learning, or are, to a significant extent, a reaction to changed risk perceptions. Results indicate that risk-averse firms reacted significantly stronger to the event. Supporting the assumption of partly perception-based adjustments of RAW inventories, and learning-based adjustments of WIP and FG. Across all firms, the observed reactions reduced the firms’ return on assets by 0.428 percentage points. The GEJE provides an interesting case, as the risk of a similar event happening again did hardly change after 2011, suggesting observed managerial responses to be independent of a changed risk environment. As quantitative accounts of managerial responses to lp-hc events in general and the GEJE in particular are largely absent from the literature, this study advances our understanding of how firms frame such risks as to ascertain their decision-making process. The details of the observed response patterns are also of interest to insurers, investors and standard-setting organizations.

Exploring the relationship of discrete components of inventory with financial performance in Indian automotive industry

Inventory holdings and its discrete components [i.e., raw material inventory (RMI), work in process inventory (WIPI) and finished goods inventory (FGI)] are very important factors influencing the firm performance. The objective of this paper is to study the relationship between discrete components of inventory [raw material (RM), work-in-process (WIP), and finished goods (FG)], and financial performance in manufacturing companies. Statistical analysis has been applied to the financial information of 522 Indian automotive manufacturing firms over the ten-year period from 2002-2003 to 2011-2012. Through the analysis, this paper finds statistically significant relationships between the discrete components of inventory and measures of financial performance (at both the gross and operating levels) for firms in automotive manufacturing industries. This paper adds to previous literature by discussing and testing the relationship between the discrete types of inventory (RMI, WIP, and FGI) and firm's profitability of operations, both at the gross and at the operating profit levels.

The use of rush deliveries in periodic review assemble-to-order systems

We calculate optimal safety stock in a periodic review (T,S) assemble-to-order system having multiple components and multiple finished goods (FGs). Customer orders for FGs arrive according to independent Poisson processes, and cannot be neither backlogged nor lost. In case of potential component stock-out, the studied system uses rush deliveries from suppliers. For this setting, approximate expressions of the optimal safety stock that minimise the sum of inventory holding and rush ordering costs are developed. Exact optimal safety stocks are calculated using Discrete Event Simulation, and compared numerically to the approximate expressions. The model is applied to a first-tier automotive supplier and yields to a significant reduction in terms of inventory holding and rush ordering costs. A sensitivity analysis on relevant system parameters such as components demand, assembly coefficients and unit rush ordering cost is conducted.

Supply chain risk management for critical commodities: A system dynamics model for the case of the rare earth elements

We investigate mitigation strategies that potentially reduce the supply chain risk caused by exogenous interventions for critical commodities. We apply a system dynamics approach to examine the individual company’s reaction in the rare earth elements (REEs) supply chain to China’s introduction of export restrictions over a three-stage supply chain for 11 REEs, 10 semi-finished goods (SFG), and 21 finished goods (FG) between 2004 and 2015. We analyze how FG and SFG substitution, secondary recycling, supply extension and research and development (R&D) affect dynamic variables such as the price level, supply and demand on each stage to determine the effectiveness of each strategy for mining companies, SFG and FG producers.FG and SFG substitution show the highest potential for mitigating supply unavailability. Substitution is especially beneficial for FG producers. It also has the advantage of offering a quick development of alternatives for reducing REE supply unavailability risk. Due to the fact that the necessary infrastructure and technology are not available, secondary recycling shows only a low mitigation potential for FG companies. It was shown that mining companies do not invest proactively in supply capacities beyond China, as our simulation shows that it took 6 years until a new REE mine was opened. R&D is identified as a key element for REE mining companies, SFG and FG producers when it comes to developing alternative products and recycling techniques. Nonetheless, SFG producers face huge difficulties when trying to develop substitutes as alternative materials are not present.

The stochastic economic lot sizing problem for non-stop multi-grade production with sequence-restricted setup changeovers

We study a variant of the stochastic economic lot scheduling problem (SELSP) encountered in process industries, in which a single production facility must produce several different grades of a family of products to meet random stationary demand for each grade from a common finished-goods (FG) inventory buffer that has limited storage capacity. When the facility is set up to produce a particular grade, the only allowable changeovers are from that grade to the next lower or higher grade. Raw material is always available, and the production facility produces continuously at a constant rate even during changeover transitions. All changeover times are constant and equal to each other, and demand that cannot be satisfied directly from inventory is lost. There is a changeover cost per changeover occasion, a spill-over cost per unit of product in excess whenever there is not enough space in the FG buffer to store the produced grade, and a lost-sales cost per unit short whenever there is not enough FG inventory to satisfy the demand. We model the SELSP as a discrete-time Markov decision process (MDP), where in each time period the decision is whether to initiate a changeover to a neighboring grade or keep the set up of the production facility unchanged, based on the current state of the system, which is defined by the current set up of the facility and the FG inventory levels of all the grades. The goal is to minimize the (long-run) expected average cost per period. For problems with more than three grades, we develop a heuristic solution procedure which is based on decomposing the original multi-grade problem into several 3-grade MDP sub-problems, numerically solving each sub-problem using value iteration, and constructing the final policy for the original problem by combining parts of the optimal policies of the sub-problems. We present numerical results for problem examples with 2–5 grades. For the 2- and 3-grade examples, we numerically solve the exact MDP problem using value iteration to obtain insights into the structure of the optimal changeover policy. For the 4- and 5-grade examples, we compare the performance of the decomposition-based heuristic (DBH) solution procedure against that obtained by numerically solving the exact problem. We also compare the performance of the DBH method against the performance of three simpler parameterized heuristics. Finally, we compare the performance of the DBH and the exact solution procedures for the case where the FG inventory storage consists of a number of separate general-purpose silos capable of storing any grade as long as it is not mixed with any other grade.

Lot streaming for customer order scheduling problem in job shop environments

In this study, several jobs make up a given customer order, and each job consists of a batch size greater than one, and nothing is delivered to the customer until the order is complete. Until delivery can be made, the completed jobs are to be stored in the inventory. In an order-based environment, scheduling is usually referred to as a customer order scheduling (COS) problem. The lot streaming (LS) technique is to split a processing job into several sub-jobs such that successive operations of the same job can be overlapped. LS has been shown to be an effective technique for compressing the mean lead time in a job-based environment, but has not been studied in the order-based environment. Therefore, this paper extends, for the first time, the applicability of LS to the COS problem, in order to investigate whether the expected benefits of LS can be observed in an order-based environment. To solve this complex problem, a genetic algorithm (GA) is applied to determine the LS conditions. The experiments led to the conclusion that our proposed algorithm (LS-GA) is significantly superior over the other LS modes in terms of makespan, lateness and finished goods (FG) flow time.

Simulation studies of the effects of Safety Stock and related policies upon Bullwhip oscillation in supply chains

In a recent earlier article, the dynamics of a supply chain were addressed by use of system dynamics models (Janamanchi, B. and Burns, J.R. 2007b). The focus was on the Bullwhip effect, and the possible overshoot and oscillation that can arise in Finished Goods (FG) inventories from it. In this article, studies involving the level of Safety Stock itself, along with lengthening replenishment strategies are investigated. The effects of lengthening the times to replenish Work-In-Process and FG are investigated. The impacts upon the Bullwhip effect as well as total costs and cycle time are studied. A practical strategy for implementation is also discussed.

Reducing bullwhip oscillation in a supply chain: a system dynamics model-based study

The dynamics of change management in a supply chain context are addressed by the use of system dynamics models. The focus is on the bullwhip effect and the possible overshoot and oscillation that can arise in Finished Goods (FG) inventories from it. Enterprise-wide information visibility between supply chain partners, have already proved their worth as effective measures to combat information distortion and to arrest the bullwhip propagation. Strategies such as, expanded workweek to absorb sudden surges in production demand, as well as tweaking order forecasts have been tested and found to be capable complements to information visibility. The purpose of this paper is to study a third complementary strategy of lengthening inventory replenishment times to see if further reductions in the bullwhip effect can be observed. Specifically, ordering policies that do not entail the immediate replenishment of used up safety stocks will be considered.

Effects of flexibility through set-up time reduction and expediting on integrated production-distribution systems

A model of an integrated production-distribution system is applied to the question of the impact of flexibility (setup time reduction and expediting) in manufacturing on stock levels throughout the supply chain. The analysis is based on a three-echelon supply chain model consisting of three locations: a factory work center, a finished-goods (FG) stockpile, and a retailer stocking point. One product is manufactured and distributed. Two model variations are introduced to represent systems in which the FG stockpile may or may not expedite in the event of a stockout. The ability of the factory to expedite represents the second aspect of flexibility considered. Since expedited orders interrupt the processing of replenishment orders, production scheduling is directly linked to the inventory-stocking policies at the FG stockpile. FG policies are, in turn, affected by stock control at the retailer. The results indicate that the cost of holding inventory will be less when manufacturing has low setup times and that the gains from implementing an expediting system are realized only in high-setup-time facilities. >