An application of inventory pooling / distribution models in glass industry

Abstract

Supply chain is a concept in which industrial engineering applications are very important in decision making processes by requiring systematic perspective, scientific approach and correct methodology. Supply chain concept covers a wide range of processes, from raw material procurement from suppliers to product delivery to customers. Inventory management, which is one of the subheadings of the supply chain, has both operational and financial consequences. While raw material inventory levels are kept high by the management in order to reduce the risk of being stockout, this reduces the net working capital due to the decrease in the inventory turnover rate of the companies. In this thesis, the benefits and costs arising from the coordination between the factories of a company operating in different locations in case of inventory pooling and selection of appropriate suppliers are evaluated. For this purpose, data set obtained from the company operating in the glass sector is used to provide input to the established mathematical model. The model achieves optimum results that are consistent with the supplier's capacity constraint by minimizing fixed costs, distribution costs, holding costs and purchasing costs while making supplier selection and warehouse location assignments. The nonlinear model, which emerges because the safety stock level calculation contains square root expression, is linearized by using piecewise linear function. The model results are compared under the scenarios of single warehouse use, the optimum number of warehouse use determined by the model and the use of all warehouses. On the other hand, since varying sales prices and profitability rates of suppliers create inequality while comparing scenarios, these factors are eliminated from the model and what-if study is performed. As a result, the decrease in inventory levels reduces the inventory holding cost and fixed cost, thus provides a cost advantage in spite of increasing in transportation cost by not using all available warehouses which are close to factories. This shows how important it is to ensure inter-location coordination in companies operating in multiple locations.