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A novel approach to safety stock management in a coordinated supply chain with controllable lead time using present value

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  • Marcello Braglia
  • Davide Castellano
  • Marco Frosolini

Abstract

This paper considers the management of safety stock in a coordinated single‐vendor single‐buyer supply chain under continuous review and Gaussian lead‐time demand. The lead time is supposed controllable, and shortages are not allowed. We follow the present value criterion by considering both inflation and time value of money. Our aim is to present a novel approach to optimizing the safety stock in such system. Under the conditions considered, the safety stock is typically determined according to the value assigned to the safety factor, which is thus treated as a parameter of the model, and not as a decision variable. In this paper, we take a different perspective by putting the order quantity and the safety factor in functional dependence through the adoption of a specific parameter. More precisely, we express the service level as a function of the number of admissible stockouts per time unit and the order quantity. This allows optimizing the safety stock taking into account the constraint on the number of admissible stockouts per time unit. We present both exact and approximated minimization algorithms. Numerical examples are finally shown to illustrate the effectiveness of the approximation algorithm, and to investigate the sensitivity of the model with respect to variations in some fundamental parameters. Copyright © 2015 John Wiley & Sons, Ltd.

Suggested Citation

  • Marcello Braglia & Davide Castellano & Marco Frosolini, 2016. "A novel approach to safety stock management in a coordinated supply chain with controllable lead time using present value," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 32(1), pages 99-112, January.
    • Handle: RePEc:wly:apsmbi:v:32:y:2016:i:1:p:99-112
    DOI: 10.1002/asmb.2126
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    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. 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).
    3. Haider Ali & Reshma Nasreen & Neetu Arneja & Chandra K. Jaggi, 2023. "Optimization of a periodically assessing model with manageable lead time under SLC with back order rebate for deteriorating items," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 14(1), pages 241-266, February.
    4. Metin Çakanyildirim & Sirong Luo, 2017. "Stochastic inventory system with lead time flexibility: offered by a manufacturer/transporter," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(12), pages 1533-1552, December.

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