The key to improving the trade-off between service and inventory levels in make-to-stock production: sequencing and capacity control

Safety stocks play an important role in make-to-stock production, since they ensure supply to customers despite uncertainties in production and demand. A large literature exists on safety stock calculations, but it typically assumes exogenous stationary replenishment times. In most real-world settings, capacity is a constraint leading to non-stationary replenishment times that are under the control of management. In response, we design a new production planning and control approach for make-to-stock production based on cumulative quantity logic and show how companies can use sequencing and capacity control based on current demand to improve customer supply and to reduce safety stocks. Results from discrete event simulations highlight the potential of the new approach and indicate that the proposed manufacturing control reacts robustly against wrongly set planned demand rates. This contributes to theory, while the comparatively low information processing requirements and robustness of the approach make it an important potential solution for practice.