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Bounds and Asymptotics for Planning Critical Safety Stocks

Author

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  • Paul Glasserman

    (Columbia Business School, New York, New York)

Abstract

We develop bounds and approximations for setting base-stock levels in production-inventory systems with limited production capacity. Our approximations become exact as inventories become critical , meaning either that the target service level is very high or the backorder penalty is very large. Our bounds apply even without this requirement. We consider both single-stage and multi-stage systems. For single-stage systems, we find tight bounds and asymptotically exact approximations for optimal base-stock levels; for multistage systems, our results give partial characterizations of the optimal levels. Part of our analysis is a precise connection, in the critical regime, between a multistage system and an associated single-stage system consisting solely of the bottleneck facility.

Suggested Citation

  • Paul Glasserman, 1997. "Bounds and Asymptotics for Planning Critical Safety Stocks," Operations Research, INFORMS, vol. 45(2), pages 244-257, April.
    • Handle: RePEc:inm:oropre:v:45:y:1997:i:2:p:244-257
    DOI: 10.1287/opre.45.2.244
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