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Managing inventory and service levels in a safety stock‐based inventory routing system with stochastic retailer demands

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  • Ehsan Yadollahi
  • El‐Houssaine Aghezzaf
  • Birger Raa

Abstract

The inherent uncertainty in supply chain systems compels managers to be more perceptive to the stochastic nature of the systems' major parameters, such as suppliers' reliability, retailers' demands, and facility production capacities. To deal with the uncertainty inherent to the parameters of the stochastic supply chain optimization problems and to determine optimal or close to optimal policies, many approximate deterministic equivalent models are proposed. In this paper, we consider the stochastic periodic inventory routing problem modeled as chance‐constrained optimization problem. We then propose a safety stock‐based deterministic optimization model to determine near‐optimal solutions to this chance‐constrained optimization problem. We investigate the issue of adequately setting safety stocks at the supplier's warehouse and at the retailers so that the promised service levels to the retailers are guaranteed, while distribution costs as well as inventory throughout the system are optimized. The proposed deterministic models strive to optimize the safety stock levels in line with the planned service levels at the retailers. Different safety stock models are investigated and analyzed, and the results are illustrated on two comprehensively worked out cases. We conclude this analysis with some insights on how safety stocks are to be determined, allocated, and coordinated in stochastic periodic inventory routing problem. Copyright © 2017 John Wiley & Sons, Ltd.

Suggested Citation

  • Ehsan Yadollahi & El‐Houssaine Aghezzaf & Birger Raa, 2017. "Managing inventory and service levels in a safety stock‐based inventory routing system with stochastic retailer demands," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 33(4), pages 369-381, August.
  • Handle: RePEc:wly:apsmbi:v:33:y:2017:i:4:p:369-381
    DOI: 10.1002/asmb.2241
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    Cited by:

    1. A. Mor & M. G. Speranza, 2020. "Vehicle routing problems over time: a survey," 4OR, Springer, vol. 18(2), pages 129-149, June.
    2. A. Mor & M. G. Speranza, 2022. "Vehicle routing problems over time: a survey," Annals of Operations Research, Springer, vol. 314(1), pages 255-275, July.

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