A stochastic production planning model under uncertain seasonal demand and market growth

This paper proposes a stochastic production planning model for an international enclosure manufacturing company with seasonal demand and market growth uncertainty. The company purchases material and subassembly from overseas and long lead times have been observed. To prevent excess inventory and stockout, the company is required to forecast its demand and project its purchasing decisions and production load to its key suppliers in an effort to reduce risks for both parties. To assist purchasing and production decisions, a two-stage stochastic production planning model that explicitly includes uncertainty is developed with the goal of minimising the total production, inventory, and overtime costs under all scenarios. The model is solved using real data from the company and results have demonstrated the effectiveness of the model compared with various deterministic models. Parametric analyses are performed to derive managerial insights related to issues such as overtime usage, inventory holding costs and the proper selection of scenarios under pessimist, neutral, and optimist outlooks. The model has been implemented and an annual saving of more than $400,000 in inventory cost has been achieved.