Optimal Capacity Adjustment for Supply Chain Control

122 Pages·2004·1.99 MB·English

Optimal Capacity Adjustment for Supply Chain Control
by
Benny S. Budiman
B.S. Aerospace Engineering, Texas A&M University (1991)
M.S. Engineering Mechanics, Virginia Tech (1993)
Submitted to the Department of Mechanical Engineering
in partial fulfillment of the requirements for the degree of
Doctor of Science in Mechanical Engineering
at the
Massachusetts Institute of Technology
February 2004
°c Massachusetts Institute of Technology 2004. All rights reserved.
Author............................................................................
Department of Mechanical Engineering
January 28, 2004
Certified by........................................................................
David E. Hardt
Professor of Mechanical Engineering and Engineering Systems
Thesis Supervisor
Certified by........................................................................
Stanley B. Gershwin
Senior Research Scientist, Associate Director of Laboratory for Manufacturing and
Productivity
Thesis Supervisor
Accepted by.......................................................................
Ain A. Sonin
Chairman, Department Committee on Graduate Students
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To Max Perseus Budiman
and
To the memory of Hendra Budiman
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Optimal Capacity Adjustment for Supply Chain Control
by
Benny S. Budiman
Submitted to the Department of Mechanical Engineering
on January 28, 2004, in partial fulfillment of the
requirements for the degree of
Doctor of Science in Mechanical Engineering
Abstract
This research attempts to answer the questions on the time and size of capacity ad-
justments for better supply chain management . The objective of this research is to
analytically determine simple structures to adjust capacity that require minimal com-
putational resources and are relatively easy to implement. The research focuses on
manufacturing companies that operate a make-to-order environment in which com-
panies do not keep inventory of finished products but manufacture only as many
products as the level of customer orders. The model used in the analysis is make to
order with lost sales. It is based on the assumption that, for parts and components
that can be commodity products, if a manufacturer is unable to fill a customer order,
the customer will buy the same or equivalent product from its competitor.
The optimal capacity planning problem is formulated as a dynamic program that
is solved analytically using Karush-Kuhn-Tucker (KKT) conditions. The technique
above is used to derive optimal structures for three types of capacity planning: (a)
making adjustment to the level of aggregate capacity variable, (b) using overtime
and making adjustment to the level of aggregate physical capacity, and (c) making
adjustments to the number of workers and production lines. For aggregate capacity
planning, the optimal adjustment structure is an optimal capacity band whose lower
and upper bounds depend on the probability distributions of demand and the cost pa-
rameters in a planning horizon. When attempting to plan capacity by simultaneously
using overtime and making adjustment to physical capacity, it is optimal to either
onlyuseovertimeoronlyadjustthelevelofaggregatecapacity. Theoptimalstructure
for either using overtime or making adjustment to the level of physical capacity is also
of the form of a capacity band. The optimal structures for optimal planning of the
levels of worker- and line-based capacity consists of two-dimensional capacity regions
that bear resemblance to the optimal capacity regions in the multi-factor investment
dynamics problem by Eberly and Van Mieghem [34] and concurrently by Dixit [32].
Thesis Supervisor: David E. Hardt
Title: Professor of Mechanical Engineering and Engineering Systems
Thesis Supervisor: Stanley B. Gershwin
Title: Senior Research Scientist, Associate Director of Laboratory for Manufacturing
and Productivity
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Doctoral Thesis Committee
Stanley B. Gershwin (thesis supervisor)
Senior Research Scientist and Associate Director of Laboratory for Manufacturing
and Productivity
David E. Hardt (chair and thesis supervisor)
Professor of Mechanical Engineering and Engineering Systems
Stephen C. Graves (member)
Abraham J. Siegel Professor of Management Science and Engineering Systems
David Simchi-Levi (member)
ProfessorofCivilEngineeringandEngineeringSystemsandCo-DirectorofofLeaders
for Manufacturing and System Design and Management Program
Loh, Han-Tong (member)
Associate Professor of Mechanical Engineering
National University of Singapore
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Acknowledgments
I am thankful to have been a student of Dave Hardt during my tenure as a doctoral
student at MIT. Dave has been a great thesis supervisor, teacher, and mentor, from
whom I had the privilege to learn about the T-principle in doctoral research. In
accordance with the T-principle, Dave taught me, a doctoral research should begin
with a broad understanding of the field followed by a deep dive into the rigorous
analysis to solve a particular problem. I am also thankful for having the privilege to
learnfromStanGershwin. Stanservedasthesisco-supervisorandmentor. Ilearneda
lotfromStanincludinghowtopicktheparticularproblemtosolveintheT-structured
research, i.e., to pick a problem that is ”True, New, and Important.” In addition I
feel privileged to have received guidance and advice from David Simchi-Levi, Steve
Graves, and Loh Han-Tong. David and Steve asked numerous questions that helped
refine the analyses in this work. Han-Tong constantly provided encouragement, all
the way from Singapore.
Funding for this research was supported by the Singapore-MIT- Alliance pro-
gramme, for which I am very grateful. In addition, Boeing Commercial Airplane
provided funding for the preliminary study on the forecast sharing and capacity ad-
justment problems that exist in the supply chain of an aerospace alloy. The support
from Boeing made possible the discovery phase that included mapping the alloy sup-
ply chain based on interviews with suppliers and creating a preliminary supply chain
model for simulation.
There are numerous individuals who have helped me along this journey. Among
them are, from Boeing Commercial Airplane, Jon Fitzhugh, Tom Bilczo, Larry Bug-
bee, Steve Halladin, Jim Rubert, and Dave Gilbert with whom I had the pleasure of
having numerous discussions on supply chain dynamics and problems in the commer-
cial airplane industry.
I could not have survived MIT without the help of Leslie Regan and Joan Kravit
of the Mechanical Engineering Graduate Office. They have helped me during the first
phase of my study at MIT from 1993-1996, during the second phase, and particularly
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throughout the last six months of my research that lasted for two years. I am very
grateful to have known Susan Mitchell-Hardt who has made my family feel welcomed
once again. The friendliness of Frances Alou Gershwin is also appreciated. Frances
allowed me to take up Stan’s time while they were on vacation. I am grateful to have
known Mel Gregorie, one of our neighbors in Malden, who has kept me going during
the last year of this research by providing the best biscotti and brownie I ever had.
I am thankful for the friendships of the folks in Room 35-023: Adam Rzepniewski
for his grammatical expertise and insights on control engineering and Balamurugan
Ganesan and Chester Vaughn for their enduring constant puns. Many friends have
alsoprovidedinvaluablemoralsupport,amongthemaretheMaloneys,theDosunmus,
the Tuniks, the Halseys, the Jordans, the Quinns, the Getmanskys, Denny Park, and
many others whose names I cannot possibly list due to space constraint. To those
whom I don’t get a chance to mention, I offer my gratitude for your support and my
apology for not mentioning your name.
I could not possibly have gotten to where I am now without the support of my
growing-up family. My parents, Sri-Handajani and Hendra, have brought me up
with love and have taught me discipline and the value of Perseverance, Patience, and
Passion. While I had not always listen to them in the past, I have experienced the
value of what they had taught me throughout the years. It is sad that my father
had passed away long before I could finally complete my study. To his memory I
dedicate this work. I am also grateful to be a brother of these gentlemen: Haryanto,
Linggajaya, and Henry. In particular I would like to thank Henry for his help in
taking care of Max and providing transportation during the last four months of this
work. I would like to express my gratitude toward my in-laws for their assistance
in housing Max and Linda when I needed some time to concentrate on my research
during the last few months.
I have saved the best for last. I am grateful for the loving support of my grown-up
family: my wife Linda and my newborn son Max. To Linda, thanks for just being
there and for sharing the joy of parenthood. Max is my source of smile, laughter,
excitement, and inspiration to always keep learning, growing, and improving.
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