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Optimizing Strategic Safety Stock Placement in Supply Chains with Clusters of Commonality

Author

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  • Salal Humair

    (Optiant, Incorporated, 4 Van de Graaff Drive, Burlington, Massachusetts 01803)

  • Sean P. Willems

    (School of Management, Boston University, Boston, Massachusetts 02215)

Abstract

Multiechelon inventory optimization is increasingly being applied by business users as new tools expand the class of network topologies that can be optimized. In this paper, we formalize a topology that we call networks with clusters of commonality (CoC), which captures a large class of real-world supply chains that contain component commonality. Viewed as a modified network, a CoC network is a spanning tree where the nodes in the modified network are themselves maximal bipartite subgraphs in the original network. We first present algorithms to identify these networks and then present a single-state-variable dynamic program for optimizing safety stock levels and locations. We next present two reformulations of the dynamic program that significantly reduce computational complexity while preserving the optimality of the resulting solution. This work both incorporates arbitrary safety stock cost functions and makes possible optimizing a large class of practically useful but previously intractable networks. It has been successfully applied at several Fortune 500 companies, including the recent Edelman finalist project at Hewlett Packard described in detail in Billington et al. (2004).

Suggested Citation

  • 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.
    • Handle: RePEc:inm:oropre:v:54:y:2006:i:4:p:725-742
    DOI: 10.1287/opre.1060.0313
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    References listed on IDEAS

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    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.
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    8. Corey Billington & Gianpaolo Callioni & Barrett Crane & John D. Ruark & Julie Unruh Rapp & Trace White & Sean P. Willems, 2004. "Accelerating the Profitability of Hewlett-Packard's Supply Chains," Interfaces, INFORMS, vol. 34(1), pages 59-72, February.
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    Cited by:

    1. 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.
    2. 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.
    3. Jörn Grahl & Stefan Minner & Daniel Dittmar, 2016. "Meta-heuristics for placing strategic safety stock in multi-echelon inventory with differentiated service times," Annals of Operations Research, Springer, vol. 242(2), pages 489-504, July.
    4. Salal Humair & Sean P. Willems, 2011. "TECHNICAL NOTE---Optimizing Strategic Safety Stock Placement in General Acyclic Networks," Operations Research, INFORMS, vol. 59(3), pages 781-787, June.
    5. Ingrid Farasyn & Salal Humair & Joel I. Kahn & John J. Neale & Oscar Rosen & John Ruark & William Tarlton & Wim Van de Velde & Glenn Wegryn & Sean P. Willems, 2011. "Inventory Optimization at Procter & Gamble: Achieving Real Benefits Through User Adoption of Inventory Tools," Interfaces, INFORMS, vol. 41(1), pages 66-78, February.
    6. Sean P. Willems, 2008. "Data Set--Real-World Multiechelon Supply Chains Used for Inventory Optimization," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 19-23, February.
    7. 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.
    8. John J. Neale & Sean P. Willems, 2009. "Managing Inventory in Supply Chains with Nonstationary Demand," Interfaces, INFORMS, vol. 39(5), pages 388-399, October.
    9. Grace Hua, N. & Willems, Sean P., 2016. "Analytical insights into two-stage serial line supply chain safety stock," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 107-112.
    10. Funaki, Kenichi, 2012. "Strategic safety stock placement in supply chain design with due-date based demand," International Journal of Production Economics, Elsevier, vol. 135(1), pages 4-13.
    11. Stephen C. Graves & Tor Schoenmeyr, 2016. "Strategic Safety-Stock Placement in Supply Chains with Capacity Constraints," Manufacturing & Service Operations Management, INFORMS, vol. 18(3), pages 445-460, July.
    12. 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.
    13. 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.

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