Tradeoffs between Working Capital and Production Capacity for Multi-Stage Manufacturing

Transcription

1 Tradeoffs between Working Capital and Production Capacity for Multi-Stage Manufacturing Authors: Karim Kamareddine, Yihong Yao Advisor: Jarrod Goentzel MIT SCM Research FEST May 19, 2016

2 Agenda Company/Background Introduction Manufacturing Process Inventory Production Schedule Methodology 4 Results 5 Recommendations 1

3 Company/Background 2

4 Company/Background Company: Pharmaceutical company with a multi-stage manufacturing process Background: Many SKU s with different production stages. Focusing on one SKU and one production process Primary Objective: Overall objective to reduce inventory Secondary Objective: Increase flexibility & reduce risk Proposal: Invest in new production facilities 3 Methodology: Scenario test different investments

5 Introduction 4

6 Introduction Manufacturing Process Source: (Arul Sundaramoorthy, Xiang Li, James M.B. Evans, Paul I. Bartona, 2012)

7 Introduction Production Schedule 1 Figure: Production schedule for ONE production facility 2 Figure: Production schedule for TWO production facility 6

8 Introduction Inventory (One production facility) 1 7 Characteristics: Big batches Low frequency of changeovers Long lead-times Low CAPEX investment

9 Introduction Inventory (Two production facilities) 2 8 Characteristics: Smaller batches Higher changeovers Short lead-times High CAPEX investment

10 Methodology 9

11 Methodology Scenario Analysis Scenario Number of Modules Number of Stages in Production Changeover Frequency (times/year) Changeover Time (Weeks) Base Scenario One Module Base Scenario Two Modules Scenario 2 Two Modules Scenario 3 Two Modules Scenario 4 One Module Scenario 5 One Module Scenario 6 One Module Scenario 7 One Module Scenario 8 One Module Scenario 9 Two Modules Scenario 10 Two Modules Scenario 11 Two Modules Scenario 12 Two Modules 2 0 0

12 Methodology - Production Planning Constraints Demand Number of Stages Changeover time Changeover frequency Equipment Capacity 5 tons per week ~ equipment costs 30 million 4 tons per week ~ equipment costs 24 million 3 tons per week ~ equipment costs 18 million

13 Methodology - KPIs NPV Work-in-process Inventory (WIP) Flexibility: Finished goods lead time Production utilization rate Allowable demand fluctuation

14 Results 13

15 Results 4-Stage Production 4 Stages One Module Two Modules Base Scenario Base Scenario Scenario 2 Scenario 3 Changeover Frequency (CF) (times/year) Total Production Time AVG production quantity for each batch Production time for each batch (Week/batch) Equipment Capacity (Tons/week) Production Utilization Rate (%) 80% 50% 67% 67% Machine Operating Time Rate (%) 85% 54% 69% 85% Allowable Demand Fluctuation % 6% 8% 4% 27% Lead Time (weeks) Inventory Investment ( M) Module Investment ( M) Equipment Investment ( M) Total Capital Investment ( M) NPV

16 Results 2-Stage Production One Module 2 Stages Two Modules S4 S5 S6 S7 S8 S9 S10 S11 S12 Changeover Frequency (CF) (times/year) Total Production Time AVG production quantity for each batch Production time for each batch (Week/batch) Equipment Capacity (Tons/week) Production Utilization Rate (%) 50% 67% 67% 67% 67% 50% 50% 100% 50% Machine Operating Time Rate (%) 54% 69% 77% 85% 92% 85% 92% 100% 100% Allowable Demand Fluctuation % 8% 4% 15% 27% 38% 69% 85% 0% 100% Lead Time (weeks) Inventory Investment ( M) Equipment Investment ( M) Total Capital Investment ( M) NPV

17 Results

18 Results

19 Results The higher CF is, the higher production capacity, the lower WIP The higher SG is, the higher production capacity, the higher WIP, the lower NPV

20 Recommendations 19

21 Recommendation There is a trade-off between production capacity and inventory Production capacity has a higher impact on the NPV than does inventory The best NPV is achieved when the production capacity reaches its tipping point Other considerations: flexibility and risk Future research opportunities: finished goods inventory reduction, demand variation, multiple SKUs, and/or considering new product introductions

22 Q&A 21