Safety Stock Optimization for ATO and MTO Production Systems

One of the most important competitive factors in modern industry is customer satisfaction, particularly time-to-market and quality. To reduce lead times and total costs, companies produce or purchase parts and components in advance in order to assemble products quickly once a customer order has been received. As a practice, the design of modular products (the use of Super Bills) is the best aid to obtaining an accurate process of demand forecasting, particularly with regard to ATO (Assembly To Order) or MTO (Make To Order) production systems. The best solution to forecast errors are safety stocks of pre-assembled modules or components. The literature presents several models for the calculus of the stock level for modular products, but input data are difficult to find so these models are consequently mostly qualitative. Moreover, some innovative models have previously been proposed by the authors to calculate the stock safety level for subassemblies or components in different operative contexts, with the results being presented at ICPR 17. These formulations require the definition of an important parameter k that relates to customer service level. This parameter strongly affects the logistic performance, so it can be optimized in order to minimize a total cost function. The paper aims to optimize parameter k analytically. This involves a trade off between component stock costs and production losses. It is possible to define the optimal customer service level for a generic part C belonging to n different modules. Finally, the paper contains two different industrial applications, one relating to production of air conditioning systems and the other to the wood industry.