Analyzing the ‘multi-item production-inventory’ model at Lamb Weston /Meijer, via Royal HaskoningDHV
In the Netherlands, over 2 billion tons of frozen potato products are manufactured each year, and Lamb Weston /Meijer (LWM) is one of the companies that serve the EMEA region with frozen potato products. Within her thesis, Anne van der Zande analyzed the ‘multi-item production-inventory’ model at LWM, via Royal HaskoningDHV.
Where it started
In the end-to-end supply chain of LWM, the whole process from the procurement of raw materials (growers) to the delivery of frozen potato products to customers is considered. In the industry, a make-to-stock policy is often applied because of manufacturing and cost efficiency. However, current trends indicate an increase in variety, focusing on flavors, packaging (sizes) and prints. Further, LWM has to do with perishable products. The company believes in opportunities to improve operational performance, especially because production decisions are solely based on production capacity.
Therefore, Anne van der Zande researched in what way LWM’s production and inventory control could be redesigned to improve operational performance. The model in figure 1 shows both the inventory control as well as production decisions, which could be used to evaluate the different parameter settings. Different values for the (1) order size, (2) minimum production run length, and (3) cleaning cycle were tested in the dynamic, discrete simulation model with stochastic demand.
Demand is modelled using probability distributions (stochastic). Furthermore, the system state evolves over time (dynamic) and all considered variables only change at a set point in time (discrete).
Different scenarios for the replenishment policy were tested. It was found that lower replenishment values result in a higher average processing time and a lower arrival rate. The utilization levels are regulated by the minimum production run lengths. Thus, the lower the run length, the higher the utilization. Furthermore, it was found that the utilization could be further increased for slow moving products by relaxing the running run length, which simultaneously resulted in a decrease in inventory levels and accompanied costs. Finally, both increasing the time between two subsequent cleans and reducing the clean time were found to result in a reasonable decrease in utilization of the production lines and in inventory levels.
Considering the findings from the simulation model, three main recommendations were developed:
- A combination of tactical inventory decisions and production decisions should be considered during evaluations. This research shows the importance of the additionally provided information it generates.
- By adjusting the minimum run length of slow moving products, utilization can be increased and overall costs decreased. Especially when production flexibility of such products can be increased, benefits can be achieved. Additionally, the amount of slow movers should be reconsidered, as a 20 percent reduction in products can lead to a 34% inventory decrease.
- Since both the cleaning cycle frequency and cleaning time affect utilization negatively, LMW is advised to change the cleaning cycle from two to three weeks and decrease the cleaning time as much as possible.