Setting safety stocks for stable rotation cycle schedules

In the process industries, specialized equipment and production processes often necessitate the manufacture of products in a pre-determined sequence to minimize changeover time and to simplify scheduling complexity; these types of schedules are referred to as pure rotation schedules, or product wheels, where the circumference of the wheel is the production cycle length. In these industries changeover times between the production of individual products can consume considerable time as well as raw materials and it is therefore often desirable to stabilize the production cycles in order to minimize unplanned changeovers as well as quote accurate lead times to customers. Materials requirements planning (MRP) systems are often used to plan and coordinate production and supply resources with demand in these environments. Central to the effectiveness of the MRP system is the dependability of the lead time parameters. In this paper, we introduce an optimization model to determine safety stock levels that minimize long run expected costs where a stable, cyclic schedule is used. Our model may be used strategically to assess inventory investment requirements as a function of capacity investment, product mix, production technology, demand volatility, and customer service levels. It may be used tactically to optimize item-level planning parameters such as lot size, safety stock and lead time in an MRP system and to support sales and operations planning (S&OP) processes where knowing the future costs associated with current decisions is highly desirable.