18-LOD Report - Table of Contents PROJECT REPORT...

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Table of Contents 1. Introdu ctory statement 2. Executive summary of findings and recommendations 3. Statement of the problem 4. Major steps of analysis 5. Major findings 6. Recommendations for implementation Appendices: Spreadsheet for finding optimal policy for product Y Computations performed Detailed description of model page 1 page 1 page 1 page 2 page 3 page 4 page 5 page 5 page 5 1. INTRODUCTORY STATEMENT This report contains the findings of a preliminary study covering the production/inventory control operations for packaged goods in the LOD warehouse at Sandpoint Refinery. Mr Black, Manager of the LOD, approved this study on April 18, on the basis of the project proposal submitted to him by the Management Science Group on April 11. We undertook the preliminary study during the period from May 27 to July 5. The aim of the study was (1) to develop a mathematical model for finding the best production and stock replenishment policy which minimizes the sum of all costs affected by the choice of policy, and (2) to estimate the potential savings in operating costs that can be achieved by using such a policy for all products. 2. EXECUTIVE SUMMARY OF FINDINGS AND RECOMMENDATIONS The following major findings were made: (a) Implementation ofthe policy proposed in this report for the entire product line of the LOD is estimated to result in annual savings of operating and investment costs of over $90,000. It will increase the average stock turnover to about 32 times per year. (b) The additional cost for developing the necessary computer software for implementing the policy and assuring its continued updating, and for the actual implementation ofthe policy, amounts to about $32,000 at internal charging rates. (c) The new policy could be fully implemented within 14 weeks. In view of this highly favourable ratio of savings to costs, it is recommended that the LOD immediately proceeds with implementing the proposed model. 3. STATEMENT OF THE PROBLEM The current production and stock replenishment policy for packaged goods followed by the LOD distinguishes between two groups of products: group 1 includes only highvolume products- with frequent large customer orders, and group 2 includes all other products. Group 1 currently covers 78 products (all packaged in drums of 200 litres), PROJECT REPORT PRODUCTION/INVENTORY CONTROL FOR PACKAGED GOODS AT THE LUBRICATION OIL DIVISION, SANDPOINT REFINERY
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while group 2 covers the remaining 726 products. Each group accounts for about 50% of the total dollar throughput of packaged goods. The production and stock replenishment policy is characterized as follows: 1. Group 1: any customer order equal to or larger than a given cutoff point is supplied by scheduling a special production run, while any customer orders below the cutoff point are met from stock. Stock is replenished periodically.
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