IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v54y2006i4p725-742.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1060.0313
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1060.0313?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
    ---><---

    References listed on IDEAS

    as
    1. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    2. 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.
    3. 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.
    4. 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.
    5. Kenneth F. Simpson, 1958. "In-Process Inventories," Operations Research, INFORMS, vol. 6(6), pages 863-873, December.
    6. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    7. Grace Lin & Markus Ettl & Steve Buckley & Sugato Bagchi & David D. Yao & Bret L. Naccarato & Rob Allan & Kerry Kim & Lisa Koenig, 2000. "Extended-Enterprise Supply-Chain Management at IBM Personal Systems Group and Other Divisions," Interfaces, INFORMS, vol. 30(1), pages 7-25, February.
    8. 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.
    9. 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.
    10. Hau L. Lee & Corey Billington, 1993. "Material Management in Decentralized Supply Chains," Operations Research, INFORMS, vol. 41(5), pages 835-847, October.
    11. Paul Glasserman & Sridhar Tayur, 1995. "Sensitivity Analysis for Base-Stock Levels in Multiechelon Production-Inventory Systems," Management Science, INFORMS, vol. 41(2), pages 263-281, February.
    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. 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.
    2. 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.
    3. 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.
    4. John J. Neale & Sean P. Willems, 2009. "Managing Inventory in Supply Chains with Nonstationary Demand," Interfaces, INFORMS, vol. 39(5), pages 388-399, October.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    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. 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.
    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.

    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. 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. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Gihan S. Edirisinghe & Thamer Almutairi, 2023. "Multi-Echelon Inventory Optimization for Practitioners: a Predictive Global Sensitivity Analysis Approach," SN Operations Research Forum, Springer, vol. 4(2), pages 1-20, June.
    8. 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.
    9. B Desmet & E-H Aghezzaf & H Vanmaele, 2010. "A normal approximation model for safety stock optimization in a two-echelon distribution system," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(1), pages 156-163, January.
    10. 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.
    11. Tan Wang & L. Jeff Hong, 2023. "Large-Scale Inventory Optimization: A Recurrent Neural Networks–Inspired Simulation Approach," INFORMS Journal on Computing, INFORMS, vol. 35(1), pages 196-215, January.
    12. Steffen T. Klosterhalfen & Stefan Minner & Sean P. Willems, 2014. "Strategic Safety Stock Placement in Supply Networks with Static Dual Supply," Manufacturing & Service Operations Management, INFORMS, vol. 16(2), pages 204-219, May.
    13. 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.
    14. Barnes-Schuster, Dawn & Bassok, Yehuda & Anupindi, Ravi, 2006. "Optimizing delivery lead time/inventory placement in a two-stage production/distribution system," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1664-1684, November.
    15. John M. Bossert & Sean P. Willems, 2007. "A Periodic-Review Modeling Approach for Guaranteed Service Supply Chains," Interfaces, INFORMS, vol. 37(5), pages 420-436, October.
    16. Daniel, J. Sudhir Ryan & Rajendran, Chandrasekharan, 2006. "Heuristic approaches to determine base-stock levels in a serial supply chain with a single objective and with multiple objectives," European Journal of Operational Research, Elsevier, vol. 175(1), pages 566-592, November.
    17. 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.
    18. Achkar, Victoria G. & Brunaud, Braulio B. & Pérez, Héctor D. & Musa, Rami & Méndez, Carlos A. & Grossmann, Ignacio E., 2024. "Extensions to the guaranteed service model for industrial applications of multi-echelon inventory optimization," European Journal of Operational Research, Elsevier, vol. 313(1), pages 192-206.
    19. Ghadimi, Foad & Aouam, Tarik, 2021. "Planning capacity and safety stocks in a serial production–distribution system with multiple products," European Journal of Operational Research, Elsevier, vol. 289(2), pages 533-552.
    20. Klosterhalfen, Steffen T. & Willems, Sean P. & Dittmar, Daniel, 2023. "Safety stock placement in supply chains with expediting," European Journal of Operational Research, Elsevier, vol. 307(2), pages 745-757.

    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:inm:oropre:v:54:y:2006:i:4:p:725-742. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.