Reduction of inventory level in a production with capacity constraints - A study to analyse investments and production planning

Abstract: Equal capacity in the activities of a production line is of great importance when a good material flow is desired. This is one of the basic ideas of the Lean philosophy, a mindset every modern company strives to follow. In a production with unequal capacity, the company might have to build up inventory to be able to meet the costumer demand. Inventory is a recognized waste in a production and a cost in terms of inventory holding costs. This study is conducted to the production at BorgWarner TorqTransfer System, a producing company of awd couplings for the automotive industry. The production process is controlled with a MRP system and consists of two main processes, the parts manufacturing and the assembly. Currently, the parts manufacturing has a capacity constraint and is forced to work seven days a week, the reason why a high inventory buer needs to be built up during the weekend when the assembly is not producing. The solution approach is based on four developed scenarios, all consisting of dierent solution approaches. The rst scenario is an hypothetical implementation of a Kanban system, with required investments for equal capacity during the weekdays. In the second scenario, the theoretical rescheduling tool Rotation Cycle Policy is examined. The third scenario implies manual rescheduling of high rate products at the weekdays and low rate products at the weekends. In the last scenario, required investments for equal capacity during the weekdays with a maintained MRP-production is done. The study indicates that it is most protable to eliminate the weekend production, which results in an elimination of unnecessary inventory. The most benecial scenario is the last one, which implies a rescheduling of the weekly production planning in combination with required investments for a MRP controlled ve-day production. With this scenario, a steady material flow is achieved. The savings of reduced inventory holding costs and reduced costs of salary for unsocial hours are compared against the cost for investments for a higher capacity in the parts manufacturing. With a annual depreciation of seven years, the investment proposal is viable after four years. A long term solution, based on forecasts four years foreward, assures the company of a sustainable production planning and predetermined investment proposals.