Table of Contents

GROUP CONTRIBUTION .............................................................................................................. 3

ABSTRACT ....................................................................................................................................... 6
PROBLEM DESCRIPTION ............................................................................................................ 7
CHAPTER I: INTRODUCTION ..................................................................................................... 8
1. Problem statement ...................................................................................................................... 8
2. Scopes ......................................................................................................................................... 9
3. Limitations .................................................................................................................................. 9
4. Objective ................................................................................................................................... 10
CHAPTER II: METHODOLOGY ................................................................................................. 11
1. Problem description .................................................................................................................. 11
2. Mathematical model formulation.............................................................................................. 11
2.1. Parameters ............................................................................................................................. 11
2.2. Objective function ............................................................................................................ 12
2.3. Constraint ......................................................................................................................... 13
CHAPTER III: RESULTS AND SENSITIVITY ANALYSIS ...................................................... 16
1. Result Presentation ................................................................................................................... 16
2. Sensitivity analysis ................................................................................................................... 20
2.1. Impact of changing percent occupied by MTO and MTS on the revenues. ............... 20
2.2. Impact of changing percent of capacity between MTO and MTS on the inventory
holding costs. ........................................................................................................................ 22
2.3. Impact of distributing capacity between MTO and MTS on the costs. ...................... 23
2.4. Impact of increasing fabric price on the profits ............................................................ 24
CHAPTER IV: CONCLUSION ..................................................................................................... 25
APPENDIX ..................................................................................................................................... 26
1. Data collection .......................................................................................................................... 26
2. CPLEX Implementation ........................................................................................................... 31
2.1. Mod.file ................................................................................................................................. 31
2.2. Dat.file ................................................................................................................................... 34
REFERENCES ............................................................................................................................... 36

2
 GROUP CONTRIBUTION

TASK
No. FULL NAME STUDENT ID CONTRIBUTION
ALLOCATION
Report design
Researching
Report Writing:
1 Trương Minh Đức IELSIU20013 100%
- Methodology
(Group Leader) - Introduction
- Conclusion
Researching
Report Writing:
2 La Hạnh Dung IELSIU20287 - Programming 100%
- Result
- Sensitivity Analysis
Researching
Report Writing:
3 Nguyễn Minh Anh IELSIU20258 - Programming 100%
- Result
- Sensitivity Analysis
Researching
Report Writing:
4 Phan Châu Anh IELSIU20261 - Abstract 100%
- Introduction
- Methodology

3
 LIST OF TABLES

Table 1: Production capacity data ..........................................................................................................26

Table 2: Value of cost parameters .........................................................................................................26
Table 3: Inventory holding cost of fabric f during period t (EGP/m2/week) .............................26
Table 4: Inventory holding cost per unit of MTO product m during period t
(EGP/unit/week) ..........................................................................................................................................27
Table 5: Inventory holding cost per unit of MTS product j during period t (EGP/unit/week):
..........................................................................................................................................................................27
Table 6: Regular time production cost per unit of MTO product m (EGP/unit) .......................27
Table 7: Regular time production cost per unit of MTS product j (EGP/unit) ..........................27
Table 8: Over – time production cost per unit of MTO product m (EGP/unit) .........................27
Table 9: Over – time production cost per unit of MTS product j (EGP/unit) ............................27
Table 10: Subcontracting cost for MTO product i during period t (EGP/unit) .........................28
Table 11: Amount of fabric f used to make one unit of MTO product m (m2) .........................28
Table 12: Labor hours required to process one unit of MTO product m (hrs/unit) ..................28
Table 13: Labor hours required to process one unit of MTS product j (hrs/unit) .....................28
Table 14: Storage space requirements per unit of finished MTO product m (m2/unit) ...........28
Table 15: Storage space requirements per unit of finished MTS product j (m2/unit) ..............28
Table 16: Demand based on confirmed orders at the beginning of the planning horizon ......29
Table 17: Forecasted demand for MTS product j during period t .................................................29
Table 18: Selling price for one unit of MTO product m (EGP/unit) ............................................29
Table 19: Selling price for one unit of MTS product j (EGP/unit) ...............................................29
Table 20: Purchase price r of fabric f at level k, where k=1,2, indicating the two pricing
levels (EGP/m2) ...........................................................................................................................................29
Table 21: Minimum meters of fabric so that the discount is offered/can purchase from a
wholesaler (m2) ............................................................................................................................................30
Table 22: Initial cash available at the beginning of the planning horizon (EGP) .....................30
Table 23: Minimum final cash targeted at the end of the planning horizon (EGP) .................30
Table 24: A Large positive number .......................................................................................................30
Table 25: Initial inventory available at t = 0 .......................................................................................30
Table 26: Minimum batch size for production of MTO product m ..............................................30
Table 27: Minimum batch size for production of MTS product j .................................................30
4
Table 28: Ro: Regular time production quantity of MTO product m during period t .............16
Table 29: RS: Regular time production quantity of MTS product j during period t ................16
Table 30: OO: overtime production quantity of MTO product m during period t ....................16
Table 31: OS: overtime production quantity of MTS product j during period t .......................16
Table 32: IF: Area of fabric f kept in inventory by the end of period t (m2)..............................17
Table 33: IO: Work in progress inventory level of MTO product m by the end of period t .17
Table 34: IS: WIP Inventory level of MTS product j by the end of period t .............................17
Table 35: CH: Cash available by the end of period t (EGP) ..........................................................17
Table 36: FQ: fabric order quantity solution: .....................................................................................18
Table 37: Production plan for MTO and MTS produced during period t (To, Ts) ...................19
Table 38: b = 1 if fabric f is purchased for price level k=2, in period t and = 0 otherwise. ...20
Table 39: S: Subcontracting amount of product m at period t .......................................................20
Table 40: Capacity distributed between MTO, MTS, and their projected revenues ................21
Table 41: Percentage of capacity distributed between MTO and MTS vs. Inv. holding cost22
Table 42: Production costs (EGP) vs. percentage of capacity........................................................23
Table 43: Fabric price percentage increase vs. profits and fabric cost ........................................24

5
 ABSTRACT

The garment industry develops a mixed integer linear programming (MILP) model for production
planning. When demand exhibits predictable swings, the model takes capacity and financial planning
decisions into account for mixed make-to-order (MTO)/make-to-stock (MTS) environments. The literature
does not place much emphasis on the capacity allocation between MTO and MTS products or the influence
of cash availability on production choices. The constructed model is used to analyze a real-world scenario
in Egypt, and the results' sensitivity is examined. While the overall net profits were not considerably
impacted by changes in inventory holding costs, the model was highly sensitive to increases in fabric
pricing and subcontracting costs. The amount of MTS production rises as cash becomes available;
however, splitting the capacity into 60% and 40% for MTO and MTS products, respectively, turned out to
be the greatest choice and had a big impact on revenues and preserving financial stability.

6
 PROBLEM DESCRIPTION

Make to order (MTO) is a business strategy which allows customers to purchase products that are
customized to their specific needs. The MTO manufacturing process only starts when the business receives
a confirmed order. This leads to the uncertain demands in quantities and times though the delivery dates
are crucial; thus, it highly requires an effective production plan that fully controls the production flow rate.

Make to stock (MTS) is a traditional business strategy that matches inventory level with customer’s
demand. A company forecasts the amount of orders it could generate, and then provides enough stock to
meet the demand. The MTS method highly required a precise forecast to optimize the inventory cost.

The ready garment (RMG) industry has a challenge that they need to satisfy both the need for seasonality
production and new fashion trends. The decisions include the timing for manufacturing process and
production quantity to meet the demand which directly affect the total cost and revenue. In addition, the
other elements that could impact the cost are fabric prices (fluctuated), continuous payment delays and
pressuring periodical operation cost, which lead to unpredictable financial status. By using a mixed MTO-
MTS strategy, the business could determine the quantity of products which differ in demand pattern, to
serve customers who differ in delivery time expectations. However, the major challenge is managing both
MTS and MTO production within a short planning horizon along with limited production and financial
resources.

7
 CHAPTER I: INTRODUCTION
1. Problem statement

It can be challenging to manage MTO and MTS production simultaneously at a factory that
produces ready-to-wear clothing. Particularly if one of the systems was the sole type of production
that applied and the planning horizon was limited due to the nature of the sector. The factory has a
limited capacity and financial resources, and various garments require varied labor hours and
amounts of fabric per item. The factory must also supply the necessary funds to cover the cost of the
cloth after it has been ordered.

There are two major places to buy fabric: retailers or wholesalers. The difference between the
wholesale and retail prices is 10% to 15%. A minimum of 30 meters of the same type of fabric must
be ordered when buying from a wholesaler.
Whether fabrics are bought from a shop or a wholesaler depends on the quantity of goods chosen
for the MTS manufacturing. Data from the past indicated that MTS textiles were purchased from a
shop without any discounts because of the tiny quantities, and that during other seasons it was
because a variety of MTS items with restricted quantities per product were available.

Fabric is only purchased for MTO items if an order is received, whereas fabric is only purchased for
MTS items dependent on cash flow and production capacity. It is crucial to record the date, the
amount of fabric purchased, and the remaining cash. The fabric supply needs to be secured in order
to guarantee a smooth production process before the proposed product or order can be put into
production.

Planning the production and delivery of garments while taking into account the cash flow during the
planning horizon was a difficult problem. As a result, decisions must be made to address these
trade-offs. Such as the amount of fabric supplied and the ordering time, inventory levels (fabrics
inventory, work in process inventory, finished garment inventory), regular and overtime production
quantities, periodic cash availability, and the optimum amount of MTS production, as well as
various MTO amounts.

The developed model's goal is to maximize net profits for various garments needed by either
MTO/MTS customers while maintaining a positive cash flow over the planning horizon.
8
The proposed model is a deterministic model designed for a combination of MTO and MTS
production with limited resources. Along the planning horizon, the model maximizes net revenues
from MTO and MTS sales. It also offers an optimal production plan that addresses common
production scenarios.

The main difference between MTO and MTS in the model is that MTS products are produced and
stocked throughout the planning horizon to meet the forecasted amounts, whereas MTO products
have no sales in the first four periods.

2. Scopes

The purpose of this project is to apply a mixed integer programming (MILP) model for inventory
management and scheduling to optimize the production and inventory decisions for mixed make-to-
order (MTO)/make-to-stock (MTS) in the garment industry. The model described in this paper is a
MILP model with the goal of maximizing the achieved net profits from reducing. The primary
reason leads to the MILP model is to develop strong and exact mathematical formulations that can
be solved in a reasonable amount of time to adapt quickly to seasonal changes by successfully
deploying capacity in support of their planned seasonal objectives.

The research concentrates on developing a mathematical model for solving given inventory
problems with generated data collected from provided paper. Therefore, the results and remarks in
this project should only be regarded in the context of a semester project; more data gathering and
experimentation are needed if full realistic planning is to be built from the given instance.

3. Limitations
In order to generate the goal of maximizing the achieved net profits from reducing, we are
developing a mixed integer programming (MILP) model for solving given inventory problems,
which is easier to modify and achieve a better structure. In contrast to the previous formulation,
which includes a non-convex objective function that is challenging to solve and does not provide
optimal convergence, our model has these advantages.

The paper considers how to optimize the production and inventory decisions while adapting quickly
to seasonal changes by successfully deploying capacity in support of their planned seasonal
objectives. In order to optimize production and planning, thereby maximizing the net profit from

9
 reductions, the following assumptions must be satisfied:
● Having short-term production plans that satisfy the need for eminent production decisions.
● Trying to meet new fashion trends.
● The timing for production and production quantities to meet due dates (the end of the season).
● If demand is not satisfied due to the unavailability of ready-made garment, a shortage cost is
incurred.

The garment and ready-made industry move very quickly from season to season, often with no
fixation, so planning and production needs to be done quickly. We can rely on a mathematical model
to plan the production, but there are still some requirements above, so it is very difficult for us to
develop the model in an optimal and easy way, while still meeting the above conditions.

4. Objective

The major goal of this project is providing students chances to comprehend the inventory management
expertise and practical cases. In the given paper, our group has to optimize production and inventory
decisions for MTS and MTO in the Ready-made garment industry which means maximizing the net profits
by subtracting potential cost elements from the sales revenues. Furthermore, we use CPLEX, Lingo,
Gurobi, etc in order to execute the prescribed model, and we may fully utilize it to construct the concept of
the specified study project.

10
 CHAPTER II: METHODOLOGY

1. Problem description
The project will focus on the Mix of MTO – MTS Ready-Made Garment Products with tracking
cash availability throughout the planning horizon.

2. Mathematical model formulation

2.1. Parameters
The indices, parameters and decision variables needed for the project are summarized in the table:

 Indices for model

M A set of MTO products
J A set of MTS products
F A set of fabric types
T Time of period (weeks)

 Parameters for model

Inventory holding cost of fabric f during period t (EGP/m2/week)

Inventory holding cost per unit of MTO product m during period t
(EGP/unit/week)
Inventory holding cost per unit of MTS product j during period t
(EGP/unit/week)
IFf0 Inventory of fabric f at period t=0 (m2)
Regular time production cost per unit of MTO product m (EGP/unit)
Regular time production cost per unit of MTS product j (EGP/unit)
Over-time production cost per unit of MTO product m (EGP/unit)
Over-time production cost per unit of MTS product j (EGP/unit)
Subcontracting cost for MTO product I during time period t
(EGP/unit)
Amount of fabric f used to make one unit of MTO product m (m2)
Amount of fabric f used to make one unit of MTS product j (m2)
Labor hours required to process one unit of MTO product m (hr/unit)
Labor hours required to process one unit of MTS product j (hr/unit)
Hmax Maximum available regular production hours
Gmax Maximum allowed overtime production hours
wf Warehouse space needed per square meter of fabric f (m2/ m2 of
fabric)
Wmax Maximum fabric warehouse capacity for fabrics (m2)
Storage space requirements per unit of finished MTO product m
(m2/unit)
Storage space requirements per unit of finished MTS product j
11
 (m2/unit)
Vmax Maximum storage capacity for MTO and MTS final products (m2)
Dmt Demand based on confirmed orders at the beginning of the planning
horizon
Fjt Forecasted demand for MTS product j during period t
Selling price for one unit of MTO product m (EGP/unit)
Selling price for one unit of MTS product j (EGP/unit)
rfk Purchase price r of fabric f at level k, where k=1,2, indicating the two
pricing levels (EGP/m2)
qf Minimum meters of fabric so that the discount is offered/ can
purchase from a wholesaler (m2)
Minimum batch size for production of MTO product m
Minimum batch size for production of MTS product j
C0 Initial cash available at the beginning of the planning horizon (EGP)
CT Minimum final cash targeted at the end of the planning horizon
(EGP)
L A Large positive number

 Decision variables for model

FQfkt Area of fabric f ordered at price level k during period t (m2)

IFft Area of fabric f kept in inventory by the end of period t (m2)
CHt Cash available by the end of period t (EGP)
WIP Inventory level of MTO product m by the end of period t
WIP Inventory level of MTS product j by the end of period t
Regular time production quantity of MTO product m during period t
Regular time production quantity of MTS product j during period t
Overtime production quantity of MTO product m during period t
Overtime production quantity of MTS0 product j during period t
bft =1 if fabric f is purchased for price level k=2, in time period t and =0
otherwise
Smt Subcontracting amount of product m at time period t
=1; if MTO product m is produced during period t, and =0 otherwise

2.2. Objective function

The Mixed – Integer Linear programming model is formulated as follows:
Max. P = ∑ ∑ +∑ ∑ -∑ ∑ -∑ ∑ -
∑ ∑ -∑ ∑ -∑ ∑ -∑ ∑ -∑ ∑ -
∑ ∑ -∑ ∑ (*)

12
 The objective function (*) seeks maximize the total profits P which is achieved from subtracting total
costs from sales revenues.

Revenue = ∑ ∑ +∑ ∑

The total costs include regular costs, overtime costs, fabric costs, inventory holding cost for fabrics,
work in process and final products over the planning horizon T and the setup cost.
2.3. Constraint
IFft=0 = IFin ∀𝑡 (1)

Constraint (1) indicates the Inventory of fabric f at time period t=0.

IFft-1 + FQfkt - ∑ -∑ = IFft ∀f , ∀𝑡 (2)

Constraint (2) represents the material balance constraints for MTO and MTS products.

= ∀𝑡 (3)
Initial inventory for MTS production is represented by equation (3).

= ∀ ∀𝑡 (4)
Equation (4) indicates inventory balance equation for meeting MTS forecast.

∀ ∀𝑡 (5)
Constraint (5) indicates MTO demand satisfaction constraint.

∑ ∑ ∀𝑡 (6)
Equation (6) is for the capacity constraints for regular products.

∑ ∑ ∀𝑡 (7)

The capacity constraint for overtime products is the equation (7).

∑ ∀𝑡 (8)

13
Fabrics storage capacity constraint is denoted by equation (8).

∑ ∑ ∀𝑡 (9)

The storage capacity for MTO and MTS final products is illustrated by equation (9)

∀ ∀𝑡 (10)

Equations (10) is developed for the quantity discount on fabric purchase, where k represents
the two price levels, k =1 means that no discount is offered for a quantity less than qf.

∀ ∀𝑡 (11)
In this (11) equation, k = 2 means that the amount purchased is greater than qf and the discount
is offered.

(12)
This (12) equation represent the initial cash at the beginning of the planning horizon.

+∑ -∑ -∑ -∑
-∑ = ∀𝑡 𝑡 { } (13)
This (13) equation presents the first four periods of the planning horizon.

+∑ -∑ -∑ -∑
-∑ = ∀𝑡 𝑡 { } (14)
This (14) equation indicates the cash balance from period 5 to the end of planning horizon,
where the MTS sales take place with the MTO sales.

≥ t = 12 (15)
The final cash at the end of the planning horizon should be greater than or equal an amount CT,
as the equation (15).

14
 ∀ ∀𝑡 (16)
∑ ∀ ∀𝑡 (17)

Equations (16) and (17) present the minimum batch of MTO production.

∀ ∀𝑡 (18)

∑ ∀ ∀𝑡 (19)

Equations (18) and (19) present the minimum batch of MTS production.

(20)

15
 CHAPTER III: RESULTS AND SENSITIVITY ANALYSIS

1. Result Presentation

For this report, 3 MTO and 5 MTS are selected. The output of number of regular time production,
overtime production, subcontracting amount of product, inventory level and production plan for
MTO/MTS products are illustrated in the following table:

 Table 28: Ro: Regular time production quantity of MTO product m during period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTO1 0 0 0 0 0 20 130 79 79 90 95 91 127
MTO2 0 0 0 0 0 25 75 80 99 70 95 25 51
MTO3 0 0 0 0 0 116 74 92 85 87 58 102 67

 Table 29: RS: Regular time production quantity of MTS product j during period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTS1 0 112 99 149 134 99 92 138 95 130 133 106 125
MTS2 0 102 116 109 80 129 119 140 103 98 140 97 138
MTS3 0 80 129 73 129 119 124 88 95 111 114 80 84
MTS4 0 108 95 116 109 91 112 73 104 91 77 119 76
MTS5 0 45 93 59 102 72 97 64 66 98 71 100 102

 Table 30: OO: overtime production quantity of MTO product m during period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTO1 0 0 0 0 0 0 0 0 0 0 0 0 0
MTO2 0 0 0 0 0 0 0 0 0 0 0 0 0
MTO3 0 0 0 0 0 0 0 0 0 0 0 0 0

 Table 31: OS: overtime production quantity of MTS product j during period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTS1 0 0 0 0 0 0 0 0 0 0 0 0 0
MTS2 0 0 0 0 0 0 0 0 0 0 0 0 0
MTS3 0 0 0 0 0 0 0 0 0 0 0 0 0
MTS4 0 0 0 0 0 0 0 0 0 0 0 0 0
MTS5 0 0 0 0 0 0 0 0 0 0 0 0 0

16
  Table 32: IF: Area of fabric f kept in inventory by the end of period t (m2)

Period
Fabrics
0 1 2 3 4 5 6 7 8 9 10 11 12
Fabric 1 6 0 0 0 0 0 0 0 0 0 0 0 0
Fabric 2 6 0 0 0 0 0 0 0 0 0 0 0 0
Fabric 3 6 0 0 0 0 0 0 0 0 0 0 0 0
Fabric 4 6 0 0 0 0 0 0 0 0 0 0 0 0
Fabric 5 6 0 0 0 0 0 0 0 0 0 0 0 0

 Table 33: IO: Work in progress inventory level of MTO product m by the end of period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTO1 92 0 0 0 0 0 0 0 0 0 0 0 0
MTO2 84 0 0 0 100 6 0 0 0 0 0 43.97 0
MTO3 130 0 0 0 0 0 0 0 0 0 0 0 0

 Table 34: IS: WIP Inventory level of MTS product j by the end of period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTS1 5 0 0 0 0 0 0 0 0 0 0 0 0
MTS2 5 0 0 0 0 0 0 0 0 0 0 0 0
MTS3 5 0 0 0 0 0 0 0 0 0 0 0 0
MTS4 5 0 0 0 0 0 0 0 0 0 0 0 0
MTS5 5 0 0 0 0 0 0 0 0 0 0 0 0

 Table 35: CH: Cash available by the end of period t (EGP)

Period 0 1 2 3 4 5 6

Value 16622 15000 10421 6704.5 1633.3 7318.3 8652.9

Period 7 8 9 10 11 12
16000
Value 9106.3 10118 11186 11538 14505

17
  Table 36: FQ: fabric order quantity solution:

MTS 1
Period 0 1 2 3 4 5 6 7 8 9 10 11 12
k=1
Value 0 473. 579. 541. 602. 723. 886. 805. 781. 834. 839. 773. 824
69 84 43 87 79 45 55 14 05 35 55 .2

k=2
Value 0 473. 579. 541. 602. 723. 886. 805. 781. 834. 839. 773. 824
69 84 43 87 79 45 55 14 05 35 55 .2

MTS 2
Period 0 1 2 3 4 5 6 7 8 9 10 11 12
k=1
Value 0 520. 626. 595. 652. 791. 962. 886. 852. 909. 918. 843. 900
32 28 8 13 82 8 34 14 47 91 66 .87

k=2
Value 0 520. 626. 595. 652. 791. 962. 886. 852. 909. 918. 843. 900
32 28 8 13 82 8 34 14 47 91 66 .87

MTS 3
Period 0 1 2 3 4 5 6 7 8 9 10 11 12
k=1
Value 0 468. 570. 539. 590. 702. 857. 788. 748. 809. 819. 753. 814
48 2 34 91 87 99 51 63 56 19 62 .62

k=2
Value 0 468. 570. 539. 590. 702. 857. 788. 748. 809. 819. 753. 814
48 2 34 91 87 99 51 63 56 19 62 .62

18
 MTS 4
Period 0 1 2 3 4 5 6 7 8 9 10 11 12
k=1
Value 0 232. 245. 286. 250. 309. 443. 465. 407. 421. 490. 348. 461
73 82 39 78 99 41 72 68 91 76 8 .43

k=2
Value 0 232. 245. 286. 250. 309. 443. 465. 407. 421. 490. 348. 461
73 82 39 78 99 41 72 68 91 76 8 .43

MTS 5
Period 0 1 2 3 4 5 6 7 8 9 10 11 12
k=1
Value 0 242. 259. 294. 260. 331. 486. 494. 436. 452. 523. 381. 501
18 83 7 14 3 61 54 36 04 03 81 .87

k=2
Value 0 242. 259. 294. 260. 331. 486. 494. 436. 452. 523. 381. 501
18 83 7 14 3 61 54 36 04 03 81 .87

 Table 37: Production plan for MTO and MTS produced during period t (To, Ts)
To:

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTO1 0 0 0 0 0 1 1 1 1 1 1 1 1
MTO2 0 0 0 0 0 1 1 1 1 1 1 1 1
MTO3 0 0 0 0 0 1 1 1 1 1 1 1 1

TS:

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTS1 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS2 0 1 1 1 1 1 1 1 1 1 1 1 1
19
 MTS3 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS4 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS5 0 1 1 1 1 1 1 1 1 1 1 1 1

 Table 38: b = 1 if fabric f is purchased for price level k=2, in period t and = 0 otherwise.

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTS1 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS2 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS3 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS4 0 1 1 1 1 1 1 1 1 1 1 1 1
MTS5 0 1 1 1 1 1 1 1 1 1 1 1 1

 Table 39: S: Subcontracting amount of product m at period t

Period
Products
0 1 2 3 4 5 6 7 8 9 10 11 12
MTO1 0 0 120 84 79 104 0 0 0 0 0 0 0
MTO2 0 0 70 78 184 0 0 0 0 0 0 110.98 0
MTO3 0 0 62 121 80 0 0 0 0 0 0 0 0

2. Sensitivity analysis

The model's behavior was evaluated by modifying influential factors and seeing how expenses and
revenues responded to those changes. The parameters chosen were those that were known in the
industry to be prone to fluctuations or uncertainty.
The factors whose values were altered and tested include the percentage of capacity filled by MTO
and MTS, respectively, fabric price changeability, inventory holding costs, and lastly
subcontracting cost.

2.1. Impact of changing percent occupied by MTO and MTS on the revenues.
Because the proportion of capacity filled by MTO in the basic example was 70% and 30% for
MTS production, it was necessary to evaluate the model's sensitivity to various percentages when
allocated alternately between MTO and MTS.

20
 Percent of capacity occupied by MTO/MTS
production
MTO MTS
Net profits
Revenues Revenues
MTO MTS

70 30 32685.93596 104922 80440

60 40 40084.3778 100722 92040

50 50 33579.47492 102822 86240

40 60 33577.85805 102822 86240

Table 40: Capacity distributed between MTO, MTS, and their projected revenues

As the percentage of capacity for MTS was increased, overall revenues increased but MTO
revenue decreased. Although the revenues shown in the graph make sense, they are not
particularly accurate if the expected demands are not completely met. In contrast, when the MTO
occupies 60% of the capacity, it contributes more money than when the MTS occupies 60% of the
capacity. Furthermore, while assessing the 70-30 percent alternately between MTO and MTS,
considerable revenues were represented when the former (MTO) held the larger percent, whereas
the MTS, the model indicated infeasibility.
That was owing to several factors, including the fact that MTS manufacturing levels are primarily
limited by cash availability, to which MTO sales contribute, but MTO production and fabric costs
are also significantly greater.

21
 Figure 1: Percent of capacity consumed by MTO-MTS vs. revenues
The smaller the percentage difference between MTO and MTS capacity, while providing the MTO
the larger proportion, the greater the revenue collected.
As a result, the most appropriate percentage division for assigning capacity to MTO-MTS would
be 60-40 or 50-50.

2.2. Impact of changing percent of capacity between MTO and MTS on the inventory
holding costs.

MTO % MTS % MTO Inv. Cost MTS Inv. Cost

70 30 5.335714 36.34024

60 40 6.097619 35.57309

50 50 6.859524 34.80593

40 60 7.621429 35.6609

Table 41: Percentage of capacity distributed between MTO and MTS vs. Inv. holding cost

22
 Percentages of capacity consumed vs the
inventory holding cost
40
35
30
25
20
15
10
5
0
70-30 60-40 50-50 40-60

MTO Inv. Cost MTS Inv. Cost

Figure 2: Percentage of capacity distributed between MTO and MTS vs. inventory holding cost

As the term implies, MTS has higher inventory costs than MTO, as seen in the table 41. The MTO
had a higher inventory because it comprises a higher percentage and there is enough storage space
to store finished MTO products to meet its due date, the MTS inventory holding cost increases
noticeably as the percent of capacity allocated for MTS increases, as shown from the results in
figure above.

2.3. Impact of distributing capacity between MTO and MTS on the costs.

The results for the costs encountered from MTO & MTS production during regular, overtime and
subcontracting show how the costs are sensitive to different production volumes for MTO and
MTS.

MTO% MTS% Production cost Overtime cost Subcontracting cost Total cost

70 30 45785.14 7630.856 14.3297 53430.32

60 40 38154.25 13735.53 16.01539 51905.79

50 50 38153.21 19839.67 25.67039 58018.55

40 60 38152.23 25943.51 31.88982 64127.63

Table 42: Production costs (EGP) vs. percentage of capacity

Figure 3 shows how the MTO manufacturing costs are considerable while occupying a lesser
percentage of the capacity. The subcontracting prices for the 70-30 and 60-40 percent were
reportedly close with a 3% difference, while the overall expenses for the same percentages were
practically identical.

23
 Percentage of capacity consumed vs. costs
140000

120000

100000

80000

60000

40000

20000

0
70 - 30 60 - 40 50 - 50 40 - 60

Production cost Overtime cost Subcontracting cost Total cost

Figure 3: MTO-MTS capacity distribution vs. costs

2.4. Impact of increasing fabric price on the profits

Fabric price is a substantial parameter of the model. Thus, measuring its implications on the profit
and inventory cost was vital. Table 43, demonstrates the net profit and fabric costs obtained for
every percent increase in the fabric price.

Fabric price percent increase 0% 10% 15% 20% 25%

Net profit 33579 30526.66 25490.29273 17767.87 6184.227249

Fabric Cost 152617.1184 167878.8 193060.6548 231672.8 289590.9821

Table 43: Fabric price percentage increase vs. profits and fabric cost

The profits were very sensitive to the fabric price increase as shown in figure 4; it showed a
decreasing pattern for every percent increase in the fabric price, which almost decayed, and no
revenues were realized when it increased by a percent more than 25 %. On the contrary, the fabric
cost moved in an increasing fashion; which was expected as it is purchased and stored for the sake
of the objective function optimality.

Figure 4: Fabric price percentage increase vs. profits

24
 CHAPTER IV: CONCLUSION

In this paper, an MILP model is developed from mixing MTO – MTS system of production and
inventory strategy for a readymade garment industry. The successful model opens a new way for
overcoming financial disadvantages and the consequences of relying solely on MTO demands by
having MTS production supporting the MTO production stream.

The production cost plays an important part in the financial plan, so that the optimum results gained
from the MILP model helped making the right decisions about inventory and MTO – MTS
production target. However, the real challenge is ensuring the revenue by the end of the season and
healthy cash flow at the end of each period. The revenue of MTS and MTO products lead to the
production process which affects the amount of fabric, the capacity of inventory and the cash
availability. By distributing the capacity 60-40% for MTO/MTS products respectively, the best
solution is generated.

The model is effective due to its simplicity and applicability in practical garment industry. It also
helps making a good decision merging the capacity of warehouse, production planning and financial
status. Thus, a garment business could sustain and grow significantly.

25
 APPENDIX

1. Data collection

 The project paper has provided these capacity value as shown in the table 1 below:

Parameters Value Units

Hmax 260 hrs/period
Gmax 10 hrs/period
Wmax 40 m2
Vmax 50 m2
Table 1: Production capacity data

 The project paper also provided values of cost parameters:

Parameters Value Units
Products holding cost 0.11 to 0.3
EGP/unit/week
Fabric holding cost 0.07 to 0.15
EGP/unit/week
Initial cash cost 200,000 EGP
Table 2: Value of cost parameters

According to the paper, the holding cost for the products ranged from 0.11 to 0.3 EGP/unit/week,
while the fabric holding cost ranged from 0.07 to 0.15 EGP/unit/week, these following data are
randomly generated using excel:

 Table 3: Inventory holding cost of fabric f during period t (EGP/m2/week)

1 2 3 4 5 6 7 8 9 10 11 12 13

1 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

2 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08

3 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

4 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

26
5 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12

 Table 4: Inventory holding cost per unit of MTO product m during period t (EGP/unit/week)

1 2 3 4 5 6 7 8 9 10 11 12 13

1 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

2 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08

3 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

 Table 5: Inventory holding cost per unit of MTS product j during period t (EGP/unit/week):

1 2 3 4 5 6 7 8 9 10 11 12 13

1 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11

2 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08

3 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

4 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

5 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12

 Table 6: Regular time production cost per unit of MTO product m (EGP/unit)

0.35 0.37 0.39

 Table 7: Regular time production cost per unit of MTS product j (EGP/unit)

0.3 0.32 0.34 0.36 0.38

 Table 8: Over – time production cost per unit of MTO product m (EGP/unit)

0.525 0.555 0.585

 Table 9: Over – time production cost per unit of MTS product j (EGP/unit)

0.45 0.48 0.51 0.54 0.57

27
  Table 10: Subcontracting cost for MTO product i during period t (EGP/unit)

1 2 3 4 5 6 7 8 9 10 11 12 13

1 0.74 0.68 0.76 0.68 0.62 0.61 0.67 0.73 0.63 0.72 0.7 0.68 0.68

2 0.81 0.83 0.72 0.75 0.64 0.67 0.72 0.81 0.78 0.75 0.74 0.61 0.83

3 0.92 0.82 0.83 0.67 0.72 0.73 0.89 0.78 0.64 0.87 0.85 0.81 0.82

 Table 11: Amount of fabric f used to make one unit of MTO product m (m2)

1 2 3

1 1.01 1.11 1.06

2 1.12 1.18 1.2

3 1.05 0.91 0.97

4 0.87 1.08 0.09

5 1.08 1.06 0.12

 Table 12: Labor hours required to process one unit of MTO product m (hrs/unit)

0.28 0.29 0.3

 Table 13: Labor hours required to process one unit of MTS product j (hrs/unit)

0.27 0.28 0.29 0.3 0.31

 Table 14: Storage space requirements per unit of finished MTO product m (m2/unit)

1.01 1 1.1

 Table 15: Storage space requirements per unit of finished MTS product j (m2/unit)

1 1.05 1.01 1 1.1

28
  Table 16: Demand based on confirmed orders at the beginning of the planning horizon

1 2 3 4 5 6 7 8 9 10 11 12 13

1 0 92 120 84 79 124 130 79 79 90 95 91 127

2 0 84 70 78 84 119 81 80 99 70 95 92 95

3 0 130 62 121 80 116 74 92 85 87 58 102 67

 Table 17: Forecasted demand for MTS product j during period t

1 2 3 4 5 6 7 8 9 10 11 12 13

1 0 117 99 149 134 99 92 138 95 130 133 106 125

2 0 107 116 109 80 129 119 140 103 98 140 97 138

3 0 85 129 73 129 119 124 88 95 111 114 80 84

4 0 113 95 116 109 91 112 73 104 91 77 119 76

5 0 50 93 59 102 72 97 64 66 98 71 100 102

 Table 18: Selling price for one unit of MTO product m (EGP/unit)

21 22 23

 Table 19: Selling price for one unit of MTS product j (EGP/unit)

18 19 20 21 22

 Table 20: Purchase price r of fabric f at level k, where k=1,2, indicating the two pricing levels
(EGP/m2)

1 2

1 2 1.9

2 2.15 1.978

29
 3 2.45 2.0825

4 2.5 2.125

5 2.3 2.2024

 Table 21: Minimum meters of fabric so that the discount is offered/can purchase from a
wholesaler (m2)
30 40 100 100 50

 Table 22: Initial cash available at the beginning of the planning horizon (EGP)

150000

 Table 23: Minimum final cash targeted at the end of the planning horizon (EGP)

160000

 Table 24: A Large positive number

100000

 Table 25: Initial inventory available at t = 0

 Table 26: Minimum batch size for production of MTO product m

20 25 30

 Table 27: Minimum batch size for production of MTS product j

15 20 25 30 35

30
2. CPLEX Implementation

2.1. Mod.file
int numf=5;
int numt=12;
int numm=3; // MTO
int numj=5;// MTS
int numk=2;

range F=1..numf;
range T=0..numt;
range M=1..numm;
range J=1..numj;
range K=1..numk;

float ICF[F][T]=...;
float ICO[M][T]=...;
float ICS[J][T]=...;
float IFin=...;
float RCO[M] =...;
float RCS[J]=...;
float OCO[M] =...;
float OCS[J] =...;
float SbC[M][T]=...;
float aO[F][M]=...;
float aS[F][J]=...;
float hO[M] =...;
float hS[J] =...;
float Hmax=...;
float Gmax=...;
float w[F] =...;
float Wmax=...;
float vO[M]=...;
float vS[J]=...;
float Vmax=...;
float D[M][T] =...;
float Fc[J][T] =...;
float pO[M]=...;
float pS[J]=...;
float r[F][K]=...;
float q[F] =...;
float C0 =...;
float CT=...;
float L =...;
float ISin =...;
float BO[M]=...;
float BS[J]=...;
31
//decision variable
dvar float+ FQ[F][K][T];
dvar float+ IF[F][T];
dvar float+ CH[T];
dvar float+ IO[M][T];
dvar float+ IS[J][T];
dvar float+ RO[M][T];
dvar float+ RS[J][T];
dvar float+ OO[M][T];
dvar float+ OS[J][T];
dvar boolean b[F][T];
dvar float+ S[M][T];
dvar boolean TO[M][T];
dvar boolean TS[J][T];

execute PRE_Setup
{
cplex.epgap=0.01;
cplex.tilim=200;
}
dexpr float net_profit = sum (m in M, t in T) pO[m]*D[m][t] + sum(j in J,t
in T)pS[j]*Fc[j][t]
- sum (m in M, t in T)RCO[m]*RO[m][t] - sum(m in M, t in T)OCO[m]*OO[m][t]
- sum(j in J, t in T)RCS[j]*RS[j][t] - sum(j in J)OCS[j]*sum(t in
T)OS[j][t]
- sum(t in T, f in F, k in K) r[f][k]*FQ[f][k][t] - sum(m in M, t in T)
ICO[m][t]*IO[m][t] - sum(j in J, t in T)ICS[j][t]*IS[j][t]
- sum(t in T, f in F) ICF[f][t]*IF[f][t]- sum(t in T, m in
M)SbC[m][t]*S[m][t];
maximize net_profit;

subject to
{
ct2:
forall ( f in F)
IF[f][0] == IFin;
//IFin
ct3:
forall (f in F, t in T, k in K:t>0)
IF[f][t] == IF[f][t-1] + FQ[f][k][t] - sum(m in M)aO[f][m]*(RO[m][t] +
OO[m][t]) - sum( j in J) aS[f][j]*(RS[j][t]+OS[j][t]) ;

ct4:
forall (j in J)
IS[j][0] == ISin;
//ISin
ct5:
forall (j in J, t in T :t>0)
(RS[j][t] + OS[j][t]) + IS[j][t-1] - IS[j][t] == Fc[j][t];
32
ct6:
forall (m in M, t in T:t>0)
IO[m][t-1] + RO[m][t] + OO[m][t] + S[m][t] == D[m][t] + IO[m][t];

ct7:
forall (t in T:t>0)
sum(m in M)(hO[m]*RO[m][t]) + sum(j in J)(hS[j]*RS[j][t]) <= Hmax;

ct8:
forall (t in T:t>0)
sum(m in M)(hO[m]*OO[m][t]) + sum(j in J)(hS[j]*OS[j][t]) <= Gmax;
ct9:
forall (t in T:t>0)
sum(f in F)(w[f]*IF[f][t]) <= Wmax ;
ct10:
forall (t in T:t>0)
sum(m in M)(vO[m]*IO[m][t]) + sum(j in J)(vS[j]*IS[j][t]) <= Vmax;

ct11:
forall (f in F, t in T:t>0)
q[f]*(1-b[f][t]) <= FQ[f][2][t];

ct12:
CH[1] == C0;

ct13:
forall (t in 1..4)
CH[t-1] + sum(m in M)(pO[m]*D[m][t]) - sum(f in F, k in
K)(r[f][k]*FQ[f][k][t])
- sum(m in M)(RCO[m]*RO[m][t] + OCO[m]*OO[m][t])
- sum(j in J)(RCS[j]*RS[j][t] + OCS[j]*OS[j][t])
- sum(m in M)(SbC[m][t]*S[m][t]) == CH[t];

ct14:
forall (t in 5..12)
CH[t-1]+ sum(m in M) pO[m]*D[m][t] + sum(j in J) pS[j]*Fc[j][t]
- sum (f in F, k in K)r[f][k]*FQ[f][k][t] - sum(m in M) (RCO[m]*RO[m][t] +
OCO[m]*OO[m][t])
- sum (j in J) (RCS[j]*RS[j][t]+ OCS[j]*OS[j][t]) + sum (m in
M)SbC[m][t]*S[m][t] == CH[t];

ct15:
CH[12] == CT;

ct16:
forall (m in M, t in T:t>0)
RO[m][t] + OO[m][t] >= BO[m]*TO[m][t];

ct17:
33
 forall (m in M, t in T:t>0)
TO[m][t] >= 1/L*sum(m in M) RO[m][t]+ OO[m][t];

ct18:
forall (j in J, t in T:t>0)
RS[j][t] + OS[j][t] >= BS[j]*TS[j][t];

ct19:
forall (j in J, t in T:t>0)
RS[j][t]+OS[j][t] >= BS[j]*TS[j][t];

ct20:
forall (j in J, t in T:t>0)
TS[j][t] >= 1/L*sum(j in J) RS[j][t]+ OS[j][t];

2.2. Dat.file

SheetConnection my_sheet("Data-prj_inv.xlsx");
ICF from SheetRead(my_sheet,"Sheet1!B4:N8");
ICO from SheetRead(my_sheet,"Sheet1!B13:N15");
ICS from SheetRead(my_sheet,"Sheet1!B20:N24");
IFin from SheetRead(my_sheet,"Sheet1!B27");
RCO from SheetRead(my_sheet,"Sheet1!B30:D30");
RCS from SheetRead(my_sheet,"Sheet1!B33:F33");
OCO from SheetRead(my_sheet,"Sheet1!B36:D36");
OCS from SheetRead(my_sheet,"Sheet1!B39:F39");
SbC from SheetRead(my_sheet,"Sheet1!B44:N46");
aO from SheetRead(my_sheet,"Sheet1!B51:D55");
aS from SheetRead(my_sheet,"Sheet1!B60:F64");
hO from SheetRead(my_sheet,"Sheet1!B68:D68");
hS from SheetRead(my_sheet,"Sheet1!B76:F76");
Hmax from SheetRead(my_sheet,"Sheet1!B79");
Gmax from SheetRead(my_sheet,"Sheet1!B82");
w from SheetRead(my_sheet,"Sheet1!B85:F85");
Wmax from SheetRead(my_sheet,"Sheet1!B88");

34
vO from SheetRead(my_sheet,"Sheet1!B91:D91");
vS from SheetRead(my_sheet,"Sheet1!B94:F94");
Vmax from SheetRead(my_sheet,"Sheet1!B97");
D from SheetRead(my_sheet,"Sheet1!B102:N104");
Fc from SheetRead(my_sheet,"Sheet1!B109:N113");
pO from SheetRead(my_sheet,"Sheet1!B116:D116");
pS from SheetRead(my_sheet,"Sheet1!B119:F119");
r from SheetRead(my_sheet,"Sheet1!B124:C128");
q from SheetRead(my_sheet,"Sheet1!B131:F131");
C0 from SheetRead(my_sheet,"Sheet1!B134");
CT from SheetRead(my_sheet,"Sheet1!B137");
L from SheetRead(my_sheet,"Sheet1!B140");
ISin from SheetRead(my_sheet,"Sheet1!B143");
BO from SheetRead(my_sheet,"Sheet1!B146:D146");
BS from SheetRead(my_sheet,"Sheet1!B149:F149");

35
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6. Soman, C. A., van Donk, D. P., & Gaalman, G. J. C. (2007). Capacitated

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36