Determining Joint Replenishment Full Container Load Ordering Polices for Imported Raw Materials used in Fabric Knitting Production

Abstract

This paper proposes an appropriate ordering policy for imported raw materials by adopting in joint-ordering and full container load (FCL) concept in order to reduce total cost including transportation cost and inventory holding cost while maintaining service level at 95%. This study was conducted as follows. Firstly, all relevant data (e.g., imported raw materials data and purchasing conditions) is reviewed. Secondly, the periodic review ordering policy type, i.e., OUL policy is proposed. The ordering quantity is determined by adjusting OUL policy in order to integrate joint replenishment and full container load concept. Three candidate policies are suggested: 1) Adjusting ordering quantity only based on average demand  2) Adjusting ordering quantity based on average demand and raw materials price, and 3) Adjusting ordering quantity based on average demand , raw materials price and variance of demand. Thirdly, the three candidate policies are evaluated by a simulation model. The most appropriate ordering policy must meet lowest average total cost and variation. Finally, a sensitivity analysis is done on the selected policy to show how changing in average demand and standard deviation of demand affects the total cost and service level.

The results show that the most appropriate ordering policy is to adjust the OUL policy based on average demand () only.  When implementing the proposed policy with the actual demand of 2019, it also shows that the total cost, transportation cost, and inventory holding cost have been decreased by 34%, 44% and 24% respectively while achieving the desired service level. Finally, the sensitivity analysis result shows that the proposed policy is robust to changes in demand pattern. There is only 10%-11% changes in total cost compared to 50% changes in average demand and more variation or worst-case scenario for demand changes.