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Deux Chemicals Inc. Goes Just-in-Time

Eller College of Management, University of Arizona, Tucson, Arizona 85721
Eller College of Management, University of Arizona, Tucson, Arizona 85721
Industrial Engineering and Operations Research Department, and Haas School of Business, University of California, Berkeley, Berkeley, California 94720
mdror{at}eller.arizona.edu
ksmith{at}eller.arizona.edu
yano{at}ieor.berkeley.edu

Deux Chemicals Inc. (a pseudonym) decided to offer its customers reliable just-in-time delivery to reduce the customers' need to hold chemicals that are difficult and expensive to store. Although its manufacturing facilities are reliable, they occasionally require unscheduled repairs that could take up to three weeks to complete. To ensure reliable supply to its customers, Deux Chemicals holds safety stock; however, it needed to determine how much additional storage capacity it would require to support its just-in-time promise. We present a methodology to determine safety-stock levels and storage capacity requirements to achieve high levels of customer service, and a production control policy that helps to minimize safety stock and storage needs. The methodology enabled Deux Chemicals to identify an economical strategy for safety stock and its storage that will allow the company to significantly reduce its risk of shortages.

Key Words: inventory/production; stochastic; capacity expansion; chemical industry; reliability; maintenance/repairs