Integrated workforce capacity and inventory management under labour supply uncertainty

Abstract

In a manufacturing environment with volatile demand, inventory management can be coupled with dynamic capacity adjustments for handling the fluctuations more effectively. In this study, we consider the problem of integrated capacity and inventory management under non-stationary stochastic demand and capacity uncertainty. The capacity planning problem is investigated from the workforce planning perspective where the capacity can be temporarily increased by utilising contingent workers from an external labour supply agency. The contingent capacity received from the agency is subject to an uncertainty, but the supply of a certain number of workers can be guaranteed through contracts. There may also be uncertainty in the availability of the permanent and contracted workers due to factors such as absenteeism and fatigue. We formulate a dynamic programming model to make the optimal capacity decisions at a tactical level (permanent workforce size and contracted number of workers) as well as the operational level (number of workers to be requested from the external labour supply agency in each period), integrated with the optimal operational decision of how much to produce in each period. We analyse the characteristics of the optimal policies and we conduct an extensive numerical analysis that helps us provide several managerial insights. Corresponding author Abstract:In a manufacturing environment with volatile demand, inventory management can be coupled with dynamic capacity adjustments for handling the fluctuations more effectively. In this study, we consider the problem of integrated capacity and inventory management under non-stationary stochastic demand and flexible capacity uncertainty. The capacity planning problem is investigated from the workforce planning perspective where the capacity can be temporarily increased by utilizing contingent workers from an external labor supply agency. The contingent capacity received from the agency is subject to an uncertainty, but the supply of a certain number of workers can be guaranteed through contracts. We formulate a dynamic programming model to make the optimal capacity decisions at a tactical level (permanent workforce size and contracted number of workers) as well as the operational level (number of workers to be requested from the external labor supply agency in each period), integrated with the optimal operational decision of how much to produce in each period. We analyze the characteristics of the optimal policies and we conduct an extensive numerical analysis that helps us provide several managerial insights.

Capacity Adjustment through Contingent Staffing Outsourcing

“…In their paper, Pac et al (2007) classified the production capacity under two main categories: permanent capacity and contingent capacity formed by the workers that can be acquired temporarily from what they call an External Labor Supply Agency (ELSA). Their paper investigates different supply uncertainty in ELSA responses to workforce request.…”

“…Moreover, identifying the needs for contingent workers in the company, finding the right supplier, reducing the time for candidate sourcing, monitoring their presence, adapting their number to the level of demand, etc., are activities that can be supported and improved using supply and purchasing techniques. Pac et al (2007) identified the risk and wrote that, in case there is a high demand for contingent workers in the market at the time of the request, or if the manufacturer requires the workers in short notice, the risk of the request not being met in full terms is highter. They identified different risk factors such as the size of available temporary worker pool, capability of finding skilled workers, competition in the environment, demand structure of different customers, and opportunities in alternative options.…”

Integrated capacity and inventory management with capacity acquisition lead times

“…From Proposition B-4 of Heyman and Sobel (2004), coupled with the convexity preservation of affine mappings (see Hiriart-Urruty and Lemaréchal, 1993) it follows that the resulting g and h functions are convex when J is convex. Finally,…”

Reducing the Negative Effects of Seasonal Demand Fluctuations: A Proposal Based On Cost-Benefit Analysis

“…On the other hand, the effects of demand uncertainties and fluctuations do not only remain at the level of manufacturing enterprise, but also the entire supply chain which might lead to inefficient processes and non-value-creating activities throughout the supply chain [3], [4]. The warehouses and storage function are also inseparable parts of the supply chain as much as that of production activities in reducing the adverse effects of demand uncertainties in this context [5] and has a critical importance on the success of such activities [6].…”