Applying simulation approach to reduce inventory

Abstract

Company XYZ's current production system maintained a high level of inventory. Additionally, product flow was not effective throughout the current manufacturing floor layout. In each assembly process, there were long waiting times which had a direct impact on manufacturing costs and space utilization. When parts and subassemblies persist in the production system longer than necessary, for both raw material and WIP, the cost of holding inventory increases, causing a delay of return on investment. The purpose of this study was to apply process mapping to identify wastes in the assembly processes, specifically the wastes that generate high inventory level and waiting time. The results from process mapping were then used to determine possible solutions. Simulation models were utilized to simulate and identify what can impact inventory levels, inventory holding time, and lead time to deliver products to customers. The results of this study identified improvement opportunities that Company XYZ can use for decreasing inventory without a negative impact on product delivery time. Based on this study results, smaller batch size tends to decrease inventory level. However, to prevent long delivery lead times, the company needs to hold some level of safety stock.