Optimization of batch sizes, A case-study in the process industry.

Abstract: Background and Research question The company have a complex product portfolio and production facility. Currently, the batch sizes in production are based on experience and is not based on any cost analysis. The central organization have recently put more emphasis on the batch sizes, especially in a context of increasing the efficiency of the packaging lines. The company wishes to investigate the batch sizes and analyze the consequences of implementing a method to calculate batch sizes from a cost perspective. Methodology The chosen research method is a balanced approach which incorporates both qualitative- and quantitative research. Interviews and archive analysis was used to develop an understanding of the problem and obtaining data for a quantitative analysis. The research took place at the company and the data was collected from the company’s IT systems. Theoretical Framework Theory relevant to the problem at hand was first studied and is presented in the report. This theory is well-established in operations research and is used as both a foundation to analyze the current situation as well as a base for suggestions of how to solve the company’s problems. Conclusion The EOQ model was chosen as a suitable theoretical model for the company. During the analysis, several findings were made regarding the current approach of determining costs and managing the inventory. The current approach of determining batch sizes encourages a reactionary way of thinking for operational planners where the most important SKUs are shown most regard due to pressure from top management. The current way of calculating safety stock have also been shown to greatly discourage an increase in batch sizes, even though an increase could both be cost-effective and increase efficiency in production. Hence, a new theoretically sound method to calculate safety stock s suggested. The report presents an approach that takes cost, the perishability of products and operational constraints into account and provides the company with an Excel based decision making tool.