IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v135y2012i1p299-307.html
   My bibliography  Save this article

Integrated safety stock optimization for multiple sourced stockpoints facing variable demand and lead time

Author

Listed:
  • Osman, Hany
  • Demirli, Kudret

Abstract

The safety stock placement problem of a multi-stage supply chain comprising multiple sourced stockpoints is addressed in this paper. Each stockpoint faces variability in its downstream demand and suppliers' lead time. The maximum among these suppliers' lead time is determined by employing concepts of order statistics. It is required to find the fill rate and safety stocks at each stockpoint that leads to satisfying the end customer service level at minimum safety stock placement cost. Hence, the fill rates and the safety amounts are decided from a global supply chain perspective. Two models are proposed; a decentralized safety stock placement model and a centralized consolidation model. The decentralized model finds the safety amounts at each stockpoint required to face its underlying lead time demand variability. The consolidation model finds the consolidated safety amounts that will be kept in the relevant consolidation center at each stage. A Benders decomposition technique is developed to handle the nonlinearity and binary restrictions involved in the safety stock consolidation model. Strategies proposed by the consolidation model achieve 45.2–62% reduction in safety amounts that results in a cost savings ranging between 22.2–44.2% as compared to the strategies proposed by the decentralized model.

Suggested Citation

  • Osman, Hany & Demirli, Kudret, 2012. "Integrated safety stock optimization for multiple sourced stockpoints facing variable demand and lead time," International Journal of Production Economics, Elsevier, vol. 135(1), pages 299-307.
    • Handle: RePEc:eee:proeco:v:135:y:2012:i:1:p:299-307
    DOI: 10.1016/j.ijpe.2011.08.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527311003252
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2011.08.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stephen C. Graves & Sean P. Willems, 2000. "Optimizing Strategic Safety Stock Placement in Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 2(1), pages 68-83, June.
    2. Ranga V. Ramasesh & J. Keith Ord & Jack C. Hayya & Andrew Pan, 1991. "Sole Versus Dual Sourcing in Stochastic Lead-Time (s, Q) Inventory Models," Management Science, INFORMS, vol. 37(4), pages 428-443, April.
    3. J. P. Royston, 1982. "Expected Normal Order Statistics (Exact and Approximate)," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 31(2), pages 161-165, June.
    4. Inderfurth, Karl, 1991. "Safety stock optimization in multi-stage inventory systems," International Journal of Production Economics, Elsevier, vol. 24(1-2), pages 103-113, November.
    5. Torabi, S.A. & Fatemi Ghomi, S.M.T. & Karimi, B., 2006. "A hybrid genetic algorithm for the finite horizon economic lot and delivery scheduling in supply chains," European Journal of Operational Research, Elsevier, vol. 173(1), pages 173-189, August.
    6. Gianni Codato & Matteo Fischetti, 2006. "Combinatorial Benders' Cuts for Mixed-Integer Linear Programming," Operations Research, INFORMS, vol. 54(4), pages 756-766, August.
    7. Inderfurth, Karl & Minner, Stefan, 1998. "Safety stocks in multi-stage inventory systems under different service measures," European Journal of Operational Research, Elsevier, vol. 106(1), pages 57-73, April.
    8. Osman, Hany & Demirli, Kudret, 2010. "A bilinear goal programming model and a modified Benders decomposition algorithm for supply chain reconfiguration and supplier selection," International Journal of Production Economics, Elsevier, vol. 124(1), pages 97-105, March.
    9. Kelle, Peter & Miller, Pam Anders, 2001. "Stockout risk and order splitting," International Journal of Production Economics, Elsevier, vol. 71(1-3), pages 407-415, May.
    10. Hahm, Juho & Yano, Candace Arai, 1992. "The economic lot and delivery scheduling problem: The single item case," International Journal of Production Economics, Elsevier, vol. 28(2), pages 235-252, November.
    11. Lawrence W. Robinson & James R. Bradley & L. Joseph Thomas, 2001. "Consequences of Order Crossover Under Order-Up-To Inventory Policies," Manufacturing & Service Operations Management, INFORMS, vol. 3(3), pages 175-188, September.
    12. Saharidis, Georgios K.D. & Kouikoglou, Vassilis S. & Dallery, Yves, 2009. "Centralized and decentralized control polices for a two-stage stochastic supply chain with subcontracting," International Journal of Production Economics, Elsevier, vol. 117(1), pages 117-126, January.
    13. Youssef Boulaksil & Jan C. Fransoo & Ernico N. G. van Halm, 2009. "Setting safety stocks in multi-stage inventory systems under rolling horizon mathematical programming models," Springer Books, in: Herbert Meyr & Hans-Otto Günther (ed.), Supply Chain Planning, pages 199-218, Springer.
    14. Louly, Mohamed-Aly Ould & Dolgui, Alexandre, 2009. "Calculating safety stocks for assembly systems with random component procurement lead times: A branch and bound algorithm," European Journal of Operational Research, Elsevier, vol. 199(3), pages 723-731, December.
    15. Kim, Taebok & Hong, Yushin & Chang, Soo Young, 2006. "Joint economic procurement--production-delivery policy for multiple items in a single-manufacturer, multiple-retailer system," International Journal of Production Economics, Elsevier, vol. 103(1), pages 199-208, September.
    16. Juho Hahm & Candace Arai Yano, 1995. "The Economic Lot and Delivery Scheduling Problem: Powers of Two Policies," Transportation Science, INFORMS, vol. 29(3), pages 222-241, August.
    17. Charles E. Clark, 1961. "The Greatest of a Finite Set of Random Variables," Operations Research, INFORMS, vol. 9(2), pages 145-162, April.
    18. Persona, Alessandro & Battini, Daria & Manzini, Riccardo & Pareschi, Arrigo, 2007. "Optimal safety stock levels of subassemblies and manufacturing components," International Journal of Production Economics, Elsevier, vol. 110(1-2), pages 147-159, October.
    19. Jensen, Mikkel T. & Khouja, Moutaz, 2004. "An optimal polynomial time algorithm for the common cycle economic lot and delivery scheduling problem," European Journal of Operational Research, Elsevier, vol. 156(2), pages 305-311, July.
    20. Hayya, Jack C. & Harrison, Terry P. & Chatfield, Dean C., 2009. "A solution for the intractable inventory model when both demand and lead time are stochastic," International Journal of Production Economics, Elsevier, vol. 122(2), pages 595-605, December.
    21. Gary D. Eppen & R. Kipp Martin, 1988. "Determining Safety Stock in the Presence of Stochastic Lead Time and Demand," Management Science, INFORMS, vol. 34(11), pages 1380-1390, November.
    22. David Simchi-Levi & Yao Zhao, 2005. "Safety Stock Positioning in Supply Chains with Stochastic Lead Times," Manufacturing & Service Operations Management, INFORMS, vol. 7(4), pages 295-318, December.
    23. Clausen, Jens & Ju, Suquan, 2006. "A hybrid algorithm for solving the economic lot and delivery scheduling problem in the common cycle case," European Journal of Operational Research, Elsevier, vol. 175(2), pages 1141-1150, December.
    24. M Khouja, 2003. "Synchronization in supply chains: implications for design and management," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(9), pages 984-994, September.
    25. Wanke, Peter F., 2009. "Consolidation effects and inventory portfolios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 45(1), pages 107-124, January.
    26. Markus Ettl & Gerald E. Feigin & Grace Y. Lin & David D. Yao, 2000. "A Supply Network Model with Base-Stock Control and Service Requirements," Operations Research, INFORMS, vol. 48(2), pages 216-232, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barros, Júlio & Cortez, Paulo & Carvalho, M. Sameiro, 2021. "A systematic literature review about dimensioning safety stock under uncertainties and risks in the procurement process," Operations Research Perspectives, Elsevier, vol. 8(C).
    2. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    3. Bandaly, Dia & Satir, Ahmet & Shanker, Latha, 2016. "Impact of lead time variability in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 180(C), pages 88-100.
    4. Govindan, Kannan, 2015. "The optimal replenishment policy for time-varying stochastic demand under vendor managed inventory," European Journal of Operational Research, Elsevier, vol. 242(2), pages 402-423.
    5. Zied Bahroun & Nidhal Belgacem, 2019. "Determination of dynamic safety stocks for cyclic production schedules," Operations Management Research, Springer, vol. 12(1), pages 62-93, June.
    6. Schuster Puga, Matías & Minner, Stefan & Tancrez, Jean-Sébastien, 2019. "Two-stage supply chain design with safety stock placement decisions," International Journal of Production Economics, Elsevier, vol. 209(C), pages 183-193.
    7. Riyadh Jamegh & AllaEldin Kassam & Sawsan Sabih, 2019. "Employment of advanced approach to control inventory level by monitoring Safety Stock in Supply Chain under Uncertain environment," Proceedings of International Academic Conferences 8711585, International Institute of Social and Economic Sciences.
    8. Gansterer, Margaretha & Almeder, Christian & Hartl, Richard F., 2014. "Simulation-based optimization methods for setting production planning parameters," International Journal of Production Economics, Elsevier, vol. 151(C), pages 206-213.
    9. Abdelsalam, Hisham M. & Elassal, Magy M., 2014. "Joint economic lot sizing problem for a three—Layer supply chain with stochastic demand," International Journal of Production Economics, Elsevier, vol. 155(C), pages 272-283.
    10. Moncayo-Martínez, Luis A. & Zhang, David Z., 2013. "Optimising safety stock placement and lead time in an assembly supply chain using bi-objective MAX–MIN ant system," International Journal of Production Economics, Elsevier, vol. 145(1), pages 18-28.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Osman, Hany & Demirli, Kudret, 2012. "Economic lot and delivery scheduling problem for multi-stage supply chains," International Journal of Production Economics, Elsevier, vol. 136(2), pages 275-286.
    2. Barros, Júlio & Cortez, Paulo & Carvalho, M. Sameiro, 2021. "A systematic literature review about dimensioning safety stock under uncertainties and risks in the procurement process," Operations Research Perspectives, Elsevier, vol. 8(C).
    3. Gonçalves, João N.C. & Sameiro Carvalho, M. & Cortez, Paulo, 2020. "Operations research models and methods for safety stock determination: A review," Operations Research Perspectives, Elsevier, vol. 7(C).
    4. Boulaksil, Youssef, 2016. "Safety stock placement in supply chains with demand forecast updates," Operations Research Perspectives, Elsevier, vol. 3(C), pages 27-31.
    5. Riezebos, Jan, 2006. "Inventory order crossovers," International Journal of Production Economics, Elsevier, vol. 104(2), pages 666-675, December.
    6. Moncayo-Martínez, Luis A. & Zhang, David Z., 2013. "Optimising safety stock placement and lead time in an assembly supply chain using bi-objective MAX–MIN ant system," International Journal of Production Economics, Elsevier, vol. 145(1), pages 18-28.
    7. Salal Humair & Sean P. Willems, 2006. "Optimizing Strategic Safety Stock Placement in Supply Chains with Clusters of Commonality," Operations Research, INFORMS, vol. 54(4), pages 725-742, August.
    8. Mekhtiev, Mirza Arif, 2013. "Analytical evaluation of lead-time demand in polytree supply chains with uncertain demand, lead-time and inter-demand time," International Journal of Production Economics, Elsevier, vol. 145(1), pages 304-317.
    9. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    10. Chatfield, Dean C. & Pritchard, Alan M., 2018. "Crossover aware base stock decisions for service-driven systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 312-330.
    11. Eruguz, Ayse Sena & Sahin, Evren & Jemai, Zied & Dallery, Yves, 2016. "A comprehensive survey of guaranteed-service models for multi-echelon inventory optimization," International Journal of Production Economics, Elsevier, vol. 172(C), pages 110-125.
    12. Kaminsky, Philip & Kaya, Onur, 2008. "Inventory positioning, scheduling and lead-time quotation in supply chains," International Journal of Production Economics, Elsevier, vol. 114(1), pages 276-293, July.
    13. Ramesh Bollapragada & Uday S. Rao & Jun Zhang, 2004. "Managing Inventory and Supply Performance in Assembly Systems with Random Supply Capacity and Demand," Management Science, INFORMS, vol. 50(12), pages 1729-1743, December.
    14. Ben-Ammar, Oussama & Bettayeb, Belgacem & Dolgui, Alexandre, 2019. "Optimization of multi-period supply planning under stochastic lead times and a dynamic demand," International Journal of Production Economics, Elsevier, vol. 218(C), pages 106-117.
    15. Kevin H. Shang & Jing-Sheng Song, 2006. "A Closed-Form Approximation for Serial Inventory Systems and Its Application to System Design," Manufacturing & Service Operations Management, INFORMS, vol. 8(4), pages 394-406, September.
    16. Albrecht, Martin, 2014. "Determining near optimal base-stock levels in two-stage general inventory systems," European Journal of Operational Research, Elsevier, vol. 232(2), pages 342-349.
    17. Clausen, Jens & Ju, Suquan, 2006. "A hybrid algorithm for solving the economic lot and delivery scheduling problem in the common cycle case," European Journal of Operational Research, Elsevier, vol. 175(2), pages 1141-1150, December.
    18. Askin, Ronald G. & Krishnan, Shravan, 2009. "Defining inventory control points in multiproduct stochastic pull systems," International Journal of Production Economics, Elsevier, vol. 120(2), pages 418-429, August.
    19. Pundoor, Guruprasad & Chen, Zhi-Long, 2009. "Joint cyclic production and delivery scheduling in a two-stage supply chain," International Journal of Production Economics, Elsevier, vol. 119(1), pages 55-74, May.
    20. Aouam, Tarik & Kumar, Kunal, 2019. "On the effect of overtime and subcontracting on supply chain safety stocks," Omega, Elsevier, vol. 89(C), pages 1-20.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:135:y:2012:i:1:p:299-307. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.