Deciding on parameter values of anchor and adjust heuristic in stock management

Abstract

Anchor-and-adjust is a widely used heuristic in stock management because, it is a fine representation of human decision making process in managing a stock. This thesis focuses on two issues related to the usage of the anchor-and-adjust heuristic in stock management: One is the selection of the decision making parameter values and the other is the determination of the desired supply line values for multi-supplier systems. Weight of Supply Line and Stock Adjustment Time are two of the decision parameters of anchor-and-adjust heuristic. We seek a rule of thumb for assigning good values to them. We first introduce a new parameter that we call Relative Aggressiveness, which together with Weight of Supply Line; determine the nature of the stock behavior. Relative Aggressiveness is Acquisition Delay Time (delay duration) divided by Stock Adjustment Time. We propose 4 as a sufficiently good and applicable value for Relative Aggressiveness. In other words, we suggest taking Stock Adjustment Time as a quarter of Acquisition Delay Time. We also give optimal values of Weight of Supply Line in a table for different delay orders and Relative Aggressiveness values. Desired Supply Line is the product of expected acquisition lag and desired acquisition rate. This calculation ensures that supply line would produce the desired acquisition rate given that it is at this desired level. A wrongly calculated Desired Supply Line value leads to a steady-state error preventing stock approach its goal. Therefore, correct calculation of Desired Supply Line values is crucial. Desired acquisition rate is equal to the expected loss flow in a single-supplier system. However, it is not easy to decide on the desired acquisition rates for a multi-supplier system. We give a general formula for the calculation of Desired Supply Line values based on the supplier utilization priorities and supplier production/shipment capacities.