Engineering Costs and Production Economics, 20 ( 1990) 43-50 Elsevier 43 SIMULATION STUDY OF PRODUCTION INVENTORY MANAGEMENT IN A MYLAR CAPACITOR MANUFACTURING COMPANY T.C.E. Cheng Department of Actuarial and Management Sciences, University of Manitoba, Winnipeg, Manitoba, Canada R3T 2N2 ABSTRACT This paper presents a case study of produc- carried out on a micro-computer to help deter- tion/inventory management in a mylar capaci- mine the most appropriate setting of the deci- tor manufacturer. After a detailed analysis of the sion variables subject to the stochastic effect of production/inventory system, the key decision the environmental factors. This study illus- variables along with the major environmental trates the potential of combining simulation factors and their inter-relationships are identi- techniques with low cost computing facilities to fied. A computer simulation model of the sys- create a powerful tool for effective management tem is then developed and simulation runs are decision making. BACKGROUND The Effective Industrial Company (E.I.C. ) was established in 1978 as a manufacturer of fluorescent tube lanterns. This line of product was still being manufactured by the company during the time of this study in 1985. How- ever, according to top management, due to the low profitability of this product group, the line would be stopped in the near future. At the time of the study, electric lanterns accounted for only 15% of the total sales of the company but required over 30% of the total work force. E.I.C. began manufacturing mylar capaci- tors in 1982, when the company received some proposals from a Korean exporter in connec- tion with the purchase of some second hand capacitor winding machines from Korea. After some study on the profitability and invest- ment level required for this type of manufac- turing, E.I.C. decided to set up the mylar ca- pacitor manufacturing line. Production know- how and raw materials for the initial runs were supplied by (or arranged through) the Korean exporter. At the time of setting up the factory in 1982, China was actively promoting the idea of com- pensation trade, an arrangement by which investors were invited to sell machines to China on a credit basis with subsequent payback from products manufactured by the machines. The top management of E.I.C. was quite interested in this idea and finally entered into an agree- ment with a factory in Guangzhow, China. By this agreement, E.I.C. was to supply the ma- chinery and know-how for performing the manufacturing operations. As for the payback of the investment, E.I.C. was to place a blanket order with the Chinese factory covering the processing of 40-45 million pieces of mylar ca- 0 167-188X/90/$03.50 0 1990 - Elsevier Science Publishers B.V.