Aligning production-inventory strategy according to seasonality

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School of Economics | Master's thesis
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Confectionery manufacturers struggle with increasing demands from customers; short delivery times, high service level and customization. The purpose of this study was to study how seasonality should be regarded in this fast-moving environment in the production-inventory strategies of companies. The objective was also to enhance knowledge and understanding of the effect of seasonality for production systems and the location of the order penetration point. Traditionally seasonality is seen as simply a demand pattern rather than a production environment, and it has been little discussed in demand management or operations management literature. However, companies seem to struggle with designing a single production-inventory strategy that would be effective both during high and low season. In the intention of filling a discovered research gap, seasonality was linked with production-inventory strategy theories to form a framework for production systems with seasonality. The framework consists of two parts: firstly, a review cycle between the seasons and secondly, a decision hierarchy for production-inventory strategies. The review cycle introduces a production-inventory strategy of a seasonally hybrid order penetration point, where the location of the main stocking point is varying between seasons. The decision hierarchy shows the relationships between the decision levels: OPP choice, capacity allocation and scheduling and control of the production line. The research methodology includes a literature review and a multi-method empirical case study of a confectionery manufacturer through interviews and numerical analysis of company data. The numerical data sources used were from the order row entries, production, delivery and warehousing records as well as information combined from the follow-up records of production batches in the information systems of the company. The most important finding from the study was the inevitable importance of the seasonality considerations to any company with seasonal demand. The developed framework serves as a tool for managers to include seasonality to their production-inventory decisions. It was also discovered that during the high peak of seasonality, flexibility tends to decrease in the supply chain and production of products, leaving less space for postponement. As to the actual seasonally dynamic order penetration point, it was found to have its potential and drawbacks, and questions are left for future researchers to solve regarding its usability in other production environments.
order penetration point, production-inventory strategy, seasonality, operations management
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