A method to exchange the demand of products for cost improvement

In a multiproduct manufacturing environment, the actual demands of various products are either available, or these are expected. There are situations when demand of a product can be substituted with that of another. In the context of cyclic manufacture, all the items are produced in an optimal cycle time, and the production facility runs at certain cost level. The total cost consists of the facility setup cost, inventory carrying costs, and the manufacturing time cost for the basic case. The total cost is optimized. For the purpose of total cost improvement, a method is presented in which the demand of a product is exchanged with that of another item in the group. The basic model without backorders is analyzed first. Then, it is extended for an inclusion of shortages that are either completely backlogged or partially. In addition to the cost components discussed before, shortage costs are included in the total cost for this case. Finally, after a discussion of idle time costs, these are also included briefly in the formulation of the total cost. The proposed methods are useful for implementation in a variety of industrial or business situations in the context of internal benchmarking or gradual improvement.