DETERMINATION OF OPTIMAL INTERMEDIATE STORAGE CAPACITY

A system of two machines running in batches and three storage used for storing raw materials, intermediate items, and finished products is considered. The system maintains enough WIP to assure no stockout will happen. Each machine has a finite production rate greater than or equal to the demand rate and thus operates with periodic start-ups and shut-downs. Using analytical results, total production cost as function of set-up costs, safety stocks, carrying costs and storage costs is presented. The problem reduces to a nonlinear, dynamic, constrained optimization one, for which a heuristic is developed that determines capacity of the buffers, the optimum safety stocks, cycle times for delivery of the raw material, and production runs such that overall costs are minimized.