**5. Phase "improve"**

To solve the root cause, at this phase, we have to introduce more flexibility at the tactical level by considering only a percentage of the production capacity. The other part of the production capacity is considered as reserve capacity. Thus, it can be used only at the operational level to efficiently meet RO with short due dates without disrupting the ongoing production. During this study, we need to achieve

#### *Enhancement of Textile Supply Chain Performance through Optimal Capacity Planning DOI: http://dx.doi.org/10.5772/intechopen.96292*

one main objective: how to satisfy the retailers' pre-season in addition to the ROs that must be in time. This objective will be reached by minimizing the internal capacity underutilization, storage, distribution operation and also the overall supply chain cost incurred by internal production, subcontracting.

The availability of products based on ROs during the season is risky for the retailer since it largely depends on the flexibility, responsiveness and efficiency of the suppliers involved. Therefore, to meet retailer orders and ensure deliveries ontime, production flexibility becomes crucial and a key competitive issue for any textile or apparel manufacturing company.

At the tactical model a reserve production capacity (RPC) is considered. We denote the percentage of internal production capacity that can be used to fulfill POs by **α**. *αkt* is the reserve related to an internal site k over a period t. As it can be noted, (100 � *αkt*) represents the percentage of internal capacity reserved to fulfill in-season ROs.

Meaning that the parameter *αkt* considered in Eqs. (3) and (6) is less than 100%.

At the operational level, the RPC considered at the tactical level is released and the entire internal capacity can be used in addition to overtime. This will provide more flexibility to accommodate unforeseen and urgent ROs.

Let us now consider the operational level, the RPC considered at the tactical level is released. In addition, all internal capacity can be used to overtime. This will result in greater flexibility to respond to unexpected and urgent ROs.

#### **5.1 The reserve production capacity estimation**

The impact of considering the RPC at the tactical planning level on supply chain costs is investigated. During this experimentation, the same value for this RPC for all internal manufacturing units is used. Firstly, for each month of the six-month tactical planning horizon, a fixed RPC is considered. The percentage of the available internal production capacity for PO planning is therefore a fixed value (α). Secondly, a RPC with monthly variation is considered. The percentage of internal generation capacity at the tactical planning model level is therefore a value that varies monthly and is noted (αt), with t indexed to the month.

The RPC needs to be estimated. Afterwards, the available two-years historical demand data is used to estimate the RPC (1-α or 1-αt). Thus, it is obtained by calculating the ratio: reserve production/total internal production during regular hours. The resulting internal production capacity rates are shown in **Table 3**.


**Table 3.**

*Observed internal production capacity rates used based on 2-year historical demand data*

Hereinafter, different values of the RPC are tested. The objective is twofold. The first one is to underline the importance of integrating RPC into tactical planning to improve flexibility. The second one is to emphasize the need to develop adequate methods based on historical demand data and can provide an efficient estimation of the RPC.

### **5.2 Production and distribution planning using a fixed reserve production capacity**

Different values of α are tested. These values vary from 70% to 100% with a difference of 5% between two consecutive values. The curve depicting the variation in supply chain cost as a function of α is plotted in **Figure 7**. The curve is characterized by an almost convex shape. In addition, for α values equal to 70%, 75% and 100% higher costs are observed. Indeed, the reserve of 30 to 25% of production capacity for ROs leads to the allocation of many orders to subcontractors at the tactical level. Consequently, a significant underutilization of capacity is observed at the operational planning level. If no reserve capacity is being considered at the tactical planning level (which is the current practice in the company), We note that, at the operational planning level, many ROs are assigned to subcontractors or produced during overtime as internal production capacity is used during regular working hours to accommodate POs.

**Figure 7.** *Supply chain cost variation with α.*

Note that in the considered real case study, the optimal supply chain cost is reached at a value α around 85%. Hence, a RPC of about 15% ensures a production flexibility that minimizes the cost of the supply chain. The average value obtained from the historical database (presented in **Table 3**) is equal to α = 80%. The cost of the corresponding supply chain is equal to 2,746 k€. This translates into a saving of 4% compared to current practice (α = 100%). When the proposed planning approach is used with α equal to 85%, the cost saving over current practice is equal to 7%.

#### **5.3 Production and distribution planning with a variable monthly reserve production capacity**

In this section, it is proposed to evaluate the monthly variable RPC. For each month t of year N, we take for each year N - 1 and N - 2 the average of the percentage of internal production capacity used as the value of αt (represented in **Table 3**). A supply chain cost equal to 2575 k€ is obtained by introducing the values of αt into the tactical planning model and sequentially applying the tactical and operational models. The cost of the supply chain is, as observed, less than that obtained when considering a fixed RPC equal to 20%. This method used to estimate the RPC leads to a 6% cost reduction compared to the previously used method. Furthermore, there is a saving of 10% compared to current practice (**Figure 8**).

This cost saving resulted from allocating six months of production to internal manufacturing units and subcontractors, as illustrated in **Figure 9**.

Firstly, when considering a monthly variable RPC at the tactical level, there is a better use of internal production capacity. Second, we find that some production is performed during overtime when the internal production capacity is not fully used during regular hours.

The reason for this can be explained by the position of PO due dates within the month. Since production in the internal manufacturing units over 1 month from tactical planning is detailed per week at the operational level, massive production in the first weeks of the month is sometimes necessary to meet the delivery due dates. *Enhancement of Textile Supply Chain Performance through Optimal Capacity Planning DOI: http://dx.doi.org/10.5772/intechopen.96292*

**Figure 9.** *Production assignment.*

As a result, overtime is needed as production during regular hours cannot reach the requested quantities. Internal production capacity for the remaining weeks of the month may be underused.

When we consider a fixed RPC (for α = 80% and α = 100%), the quantities produced at subcontractors' manufacturing units are bigger than those performed when a variable monthly RPC is considered. Consequently, the allocation of production to subcontractors is better optimized for a monthly variable RPC.

Considering this result, we emphasize the importance of the monthly variable RPC. This reserve is adjusted to ROs by assigning, at the tactical level, some productions to subcontractors while maintaining sufficient and accurate internal production capacity at the operational level to appropriately handle ROs.

However, the quantities produced in the subcontractors' manufacturing units are particularly high when we consider, at the tactical level, a fixed α, equal to 80%.

Meanwhile, the total produced quantities over the 6 months are higher than those produced when considering α equal to 100%, or a monthly variable RPC. This is due to the demand monthly variation. Actually, when we consider a fixed α equal to 80%, two situations can arise. Firstly, the ROs to be satisfied during the month require more than the available capacity and consequently more than the RPC considered. In such a case, the subcontracting activity is the main solution. Second, ROs to be placed during the month require less than the available capacity and so less RPC. Therefore, ROs to be filled for next few weeks are processed in advance to minimize capacity under-utilization. When α is equal to 100%, ROs are assigned to subcontractors since internal production capacity is overloaded by POs.

As conclusion, the use of a variable RPC at the tactical level, allows efficient use of internal production capacity and optimizes the allocation of production to subcontractors. Nevertheless, the performance of capacity planning can be improved if more accurate and reliable historical demand data is used and if forecasting methods for predicting the monthly variable RPC are carried out.

By studying the three cases mentioned above, we underline the important effect of taking into account a suitably defined RPC on the supply chain cost.
