Optware Solutions was selected by a manufacturing company with operations throughout North America to help optimize the purchase of hardwood veneers and management of veneer inventories. In this business the company buys veneers in bulk, sorts them and then sends them on to the appropriate manufacturing plants or warehouses.
In this application, Optware Solutions provided a decision support framework that included statistical analysis, forecasting techniques and the optimization power of linear programming. The multiple-time period model recognizes the sequential nature of time. It includes vendor-specific component sources and inventories and other veneers of day-to-day operations and provides insight as to how to reduce costs and operate more efficiently.
The scope of the Optware System includes: beginning inventory, WIP, purchases, shipments and ending inventory. Beginning inventory flows into the system at the start of the time horizon. Ending inventory flows out of the system at the end of the time horizon. Transitory inventories are created when veneers flow from one week to the next. Transitory inventories are assessed an inventory carrying charge when moving through time. Safety stock (SS) limits control the minimum level of transitory inventories. Safety stock serves to compensate for statistical error in the demand forecast. Deliveries act as a source of component during the weeks (represented by the upper band of arrows). Deliveries include both previously ordered component (based on Purchase Orders) and future purchases selected by the model. The overall objective of the model is to minimize the cost of procurement and inventory, yet still honor all system constraints.
Following is a list of benefits:
- Improved inventory management
- Reduced inventory carrying costs
- Reduced delivered cost of veneers
- Improved understanding of business interactions