Control Theory in Production/Inventory Systems: A Case Study in a Food Processing Organization

Production/inventory systems must attempt to cope with varying demand. This is traditionally done by applying the R,t inventory system after forecasting demand. If the demand is not stationary in mean and variance, this system relies on advanced forecasting models and may still be inadequate. A technique is presented which applies feedback control theory to the maintenance of a chosen level of safety stock. A term involving the rate of change of stock on hand is introduced to overcome the deficiencies of the standard R,t reorder policy when dealing with erratic demand. Once the parameters for an individual application are chosen the technique may be automated on any spreadsheet or modelling package. Results are produced which indicate that this is a superior heuristic to the standard R,t system.