Tactical stock target setting: setting rolling horizon aggregate stock targets based on operational characteristics and requirements

Boerrigter, R.T.F. (2012) Tactical stock target setting: setting rolling horizon aggregate stock targets based on operational characteristics and requirements.

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Abstract:This master thesis provides a model to estimate aggregate stock levels for upcoming periods of major parts of Philips Lighting’s supply chain. The model is developed to support business unit management in setting realistic stock targets for whole product groups as well as to predict medium term stock fluctuations. Based on this model, we analyzed the performance and potential of the supply chain parts under study. Important outcomes of these analyses are:  The stock targets of several product groups are currently set higher than needed, while others are set far too low.  The current supply flow of sourced products from China to Europe performs as good as structurally inferior to all other studied supply flow options. The best performing alternative requires on average 12% less total stock, while also being far more robust.  Shipping supply from China to Europe by train instead of by sea requires on average 10% less physical stock and over 50% less goods in transit stock.  The currently used methods to estimate demand uncertainty results in an average 27% underestimation of necessary safety stock levels.  At least 80% of the targeted physical stock levels of supply from China are currently required to neutralize the effects of forecast inaccuracy on service level performance. The motivation for this research arises from the manner in which business unit management currently sets stock targets for whole product groups. This is mainly based on historically achieved results and an ongoing pressure to improve performance. Business unit management concludes that the current manner is too empirical and desires a better way to set these targets. They also desire an analytic tool to gain deeper insights in the characteristics and performance of their supply chain. This contributes strongly to the identification of improvement possibilities. We developed a model that delivers both. The model is based on operational characteristics and requirements. It calculates the stock levels that are, from a mathematical perspective, at least necessary to obtain the required service levels. It calculates these levels on a weekly basis for the rolling horizon of the medium term forecast. The model takes amongst others into account supply chain configuration, forecasting accuracy, seasonality, replenishment strategy, postponed allocation of replenishment, and production related restrictions such as capacity, minimal production quantities, and production wheels. The model next consolidates the outcomes of all products to the aggregate level of whole product groups. By this, it estimates the stock levels of whole product groups for the complete medium term forecast based on operational characteristics and requirements. We conclude that this is a realistic way to set stock targets and consequently predict medium term stock fluctuations. We developed specific software to conduct the complex set of necessary calculations. It exports the resulting data on each required consolidation level and splits the stock in accordance to the stock type. With this software, we provide a very usable platform for gaining further insights in the characteristics and behavior of supply flows and product groups as well as for performing in-depth scenario analyses.
Item Type:Essay (Master)
Clients:
BU Professional Lamps Europe, Philips Lighting
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
Link to this item:http://purl.utwente.nl/essays/62078
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