Integration of production planning and inventory management processes – part 2
This article is devoted to the problem of integrating production planning processes in a factory with inventory management in a distribution center storing the manufactured goods. It presents a solution to this problem through the implementation of production planning, ordering, and inventory management procedures that ensure the integration of processes in both companies within a single logistics system.
The second part of the article will present a computer tool proposed by the author, which enables production planning while taking into account:
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the availability of inventory at the distribution center at a level ensuring the fulfillment of sales orders with a set customer service level;
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maximum utilization of machine production capacity;
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the minimum number and shortest duration of machine changeovers.
The development of information technology currently allows for constant access to necessary business information and the integration of planning processes at various levels. The integration of planning is widely promoted in the subject literature [1], [2]. However, in practice, it often turns out that the implementation of ERP-class software does not guarantee the achievement of all the benefits resulting from the integrated supply chain management concept [4], [5].
In many cases, this software is characterized by low flexibility and an inability to adapt to rapidly changing market conditions and business specifics. Due to the significant complexity of the systems and the high costs of implementing changes, “manual” management of individual chain links is most often used. Consequently, this leads to the disintegration of planning processes. The situation described above affected the enterprise that is the subject of this article. It is organized as a capital group, consisting of a “parent company” and over a dozen subsidiary production and trading companies. These companies are located mainly in Poland and are to some extent autonomous enterprises. The tasks of the “parent company” include, among others, managing the operation of the distribution center (DC). The DC stores finished goods inventory from all subsidiary production companies. Products stored in the DC are subsequently delivered to subsidiary trading companies, which distribute them. It should be noted that DC planners are responsible for the inventory level in the DC and the associated customer service level. With the dynamic development of the group and the increase in sales, the problem of inventory management intensified. Despite setting a relatively high inventory level for products of each production company, periodic stockouts occurred in the DC. Analyses conducted proved that the cause of the problem lies in the divergent interests of the production companies and the DC. Planners working in the DC aimed to maintain the lowest possible inventory levels associated with frequent machine changeovers and short production runs. Production companies, on the other hand, aimed to maximize production batch lengths and to manufacture products in sequences ensuring the shortest possible machine changeovers. Consequently, orders placed by DC planners were fulfilled with significant delays. Furthermore, the produced batches significantly exceeded the ordered quantities. This caused the overflow of post-production warehouses with goods produced to maximize production batch length and products manufactured due to the assumed machine changeover sequence without an order from the DC. Situations often occurred where the best-selling products were missing from the warehouse, while machines were producing low-turnover products not needed at the time, or those for which the warehouse stock was already excessive. It should be added that the enterprise possessed an integrated ERP-class computer system. However, this system did not enable effective production planning.
Due to the divergence of interests, the parties could not reach an agreement. Due to budget constraints, it was also impossible to adapt the existing computer system to the needs that had arisen. Therefore, it became necessary to take action to develop a method of cooperation between the DC and production companies, ensuring the integration of logistics processes in these companies within a single system. This goal translated into creating uniform procedures for production planning, ordering, and inventory management in the DC, as well as proposing a simple computer tool to support cooperation. In the first stage of the project, it was decided to focus on the largest production company.
The article comes from the magazine “Logistyka” 4/2008.