A Dynamic Lot Sizing Model with Stochastic Lead Time: A Case Study of Coal in the Cement Industry

Nirachon Wachum and Kannapha Amaruchkul.

Thai Journal of Operations Research.  Vol 4, No 2 (2016)

The objective of this research was to find a suitable inventory policy regarding coal in the cement industry. The order quantities were found by solving the dynamic lot sizing model, which incorporates time-varying coal prices. Historical prices reveal a decline trend; hence, prices are forecasted using double exponential smoothing (Holt’s method). Coal transportation consists of three parts,; namely 1) sea freight by Supramax, 2) local water freight by lighter; and 3) inland transportation by truck. The lead time was stochastic; thus, safety stock was needed based on a pre-specified 99.99% service level. The associated safety stock was 50,009.83 tons, and the reorder point was 111,693.18 tons. If this policy were to have been implemented in the previous year (2015), the saving would have been372,852,309.64 THB, or the company would have saved 22.01% of the total cost.

Keywords: Dynamic lot sizing model, safety stock, inventory optimization

Link to article https://www.tci-thaijo.org/index.php/TJOR/article/view/73272/58988