A Stochastic Production Planning Model Under Uncertain Demand

by PRAJAPATI, MEENAKSHI

Production planning plays a vital role in the management of manufacturing facilities. The problem is to determine the production loading plan consisting of the quantity of production and the workforce level - to fulfill a future demand. Although the deterministic version of the problem has been widely studied in the literature, the stochastic production planning problem has not. The application of production planning models could be limited if the stochastic nature of the problem, for example, uncertainty in future demand, is not addressed. This study addresses such a stochastic production planning problem under uncertain demand and its application in an enclosure manufacturing facility. The thesis first addresses the forecast of the demand where seasonal fluctuation is present. A decomposition model is utilized in the forecast and compared with other forecasting methods. Although forecast models could be used to improve the accuracy of forecast, error and uncertainty still exists. To deal with this uncertainty, a two stage stochastic scenario based production planning model is developed to minimize the total cost consisting of production cost, labor cost, inventory cost and overtime cost under uncertain demand. The model is solved with data from a local manufacturing facility and the results are compared with various deterministic production models to show the effectiveness of the developed stochastic model. Parametric analysis are performed to derive managerial insights related to issues such as overtime usage and inventory holding cost and the proper selection of scenarios under pessimist, neutral and optimist forecasts. An extension of the stochastic model, i.e., a robust model is also solved in an effort to minimize changes in the solutions under various scenarios. The stochastic production planning model has been implemented in the manufacturing facility, provided guidance for material acquisition and production plans and has dramatically increased the company™s bottom line. As a result, it™s estimated an approximately annual savings of $340,000 in inventory cost can be achieved for the company in the next few years.