Simulation Based Modeling of Inventory Policies and Operating Procedures in Complex, Low-Volume Electronics Manufacturing

This simulation study considers a low-volume manufacturing system, which produces complex, customized electronics. Modeling demand as a renewal-reward process, the simulation, inspired by the production system and available data from a Canadian company, examine the performance of alternative inventory policies and operating procedures. Performance indicators that measure the responsiveness and inventory on hand show trade-offs between them in order to supply relevant information to decision makers. Experiments compare make-to-order and make-to-stock scenarios with various inventory parameters as well as introducing variability to examine the model’s robustness under uncertainty. \n\nThe system under consideration consists of three main processes to manufacture a finished product from raw materials. The first process fabricates metal and electrical components from raw materials. Second, a worker assembles components into a semi-finished product. The third requires information from the customer in order to customize the product according to their needs, and test the unit to ensure its quality. The company, known for their well-designed products and exceptional customer service, wants to improve the accuracy of their leadtime promising. The current MRP control system assumes a completely make-to-order environment where every piece of WIP has a customer order attached to it. However, a forecast of orders likely to materialize from the sales quotes allows production to initiate jobs before the actual order arrives.\n\nThe approach taken to analyzing this system involves studying the make-to-stock, make-to-order decision at two stock points, components and semi-finished units. The operating procedures examine four possible stocking strategies: holding no inventory, holding only component or semi-finished inventory, and holding both components and semi-finished units. Simulation experiments determine the trade-off between holding inventory and the responsiveness to the customer for each operating procedure. Sources of randomness introduced to processing time, capacity, and demand, show how they respond to added variability. \n\nThe simulation experiments indicate that holding no inventory, and waiting for a customer order to initiate jobs, results in unstable performance. In order to achieve a stable make-to-order system, it would be necessary to have a fifty percent reduction in demand or product cycle time, a capacity expansion, or forecasting method. In the absence of an accurate forecast model, holding inventory is necessary for an acceptable level of performance. Component inventory is useful as many components are common among a number of products. Suitable component inventory can lead to customer orders typically fulfilled within two weeks. Adding semi-finished inventory can reduce the customer lead-time to under a week though requires stocking at least a few of each semi-finished unit. Holding semi-finished inventory without component stock is possible. However, it is necessary that the replenishment quantity be three or more units ordered at a time. Otherwise, the setup time for components exceeds the allowable limits and resource queues become unstable, much like the completely make-to-order scenario. Using an order-up-to parameter for semi-finished stock can further decrease the setup time incurred per unit. \n\nThe model is robust to randomness in job times, though it is component stock, which provides an effective buffer to this variability. Machine breakdowns begin to affect responsiveness measures if the average time for repair is greater than a week. Reducing the capacity in the assembly and testing processes can provide the same level of service indicating the two resources are underutilized. The analysis of this system shows the current make-to-order model requires some forecast to function in steady state, which is difficult to model without information on the current forecasting processes. Expanding the simulation model to incorporate forecasting or some other means of analysis can improve its accuracy and credibility as a management decision tool.

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