Department of Operations Planning and Control-- Working Paper Series Variable recipes: to use or not to use

This paper should not be quoted or referred to without written permission of the authors Variable recipes: to use or not to use Abstract: Process industries often obtain their raw materials from mining or agricultural industries. These raw materials usually have variations in quality which often lead to variations in the recipes used for manufacturing a product. Another reason for using variable recipes is to minimize production costs by using the cheapest materials which still lead to a satisfactory quality in the product. A third reason for using variable recipes is in case that not all materials for the standard recipe are available. This last use of variable recipes can be avoided by keeping sufficient safety stock. This means that keeping safety stock can be balanced with using variable recipes. In this paper we study this issue by means of a small scale model of the situation. We construct a simple, quantitative model of the situation under investigation and for this simple situation we derive a decision procedure that balances safety stock costs and increased production costs. 1