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Abstract

An Order Based Materials Management (OBMM) method using forecasts of actual customer orders to determine component stocking levels. There may be several types of orders and several types of customer demand forecasts for them. Each order type is specified by a variable Bill Of Materials called an 'order profile'--a multivariate probability distribution with each random variable representing the uncertain number of units of a component or subassembly that may be needed to build a customer order of that type. The profile of an order type is represented by a multivariate probability distribution of all components/subassemblies that may be needed for an order of that type, including the correlation between the numbers of units of different components needed for an order in the analysis. Using i) the desired order fill rate, ii) component lead times, iii) forecasts, and iv) forecast error variances and their distributions, OBMM determines a target number of orders for each order type over the lead times (plus one review period) for which to maintain materials. To determine component level orders and inventory quantities to achieve the desired order fill rate, target numbers and order profiles are then combined to obtain a joint multivariate distribution of components that may be needed for the target numbers of orders. Order-up-to periodic inventory policies (including safety stocks) for components and subassemblies are developed recursively from this combined multivariate distribution.

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