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Analytical insights into two-stage serial line supply chain safety stock

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  • Grace Hua, N.
  • Willems, Sean P.

Abstract

Effective inventory management is one of the most significant challenges facing today׳s global supply chains. Businesses are observing significant profitability gain by optimizing their inventory. This paper optimizes safety stock inventory in a two-stage serial line supply chain, inspired by real-life Cisco supply chains, under guaranteed-service safety stock model assumptions. We analytically show that the optimal safety stock levels depend on the cost and leadtime parameters of the supply chain. Intuitively, it is only worthwhile to hold safety stock inventory at the upstream stage when cost at the upstream stage is relatively low or its leadtime is relatively long. We also show that total supply chain safety stock cost can be reduced when cost allocated at the upstream stage is reduced or leadtime at the upstream stage is increased.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:proeco:v:181:y:2016:i:pa:p:107-112
    DOI: 10.1016/j.ijpe.2015.10.010
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    References listed on IDEAS

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    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. 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.
    3. Minner, Stefan, 2001. "Strategic safety stocks in reverse logistics supply chains," International Journal of Production Economics, Elsevier, vol. 71(1-3), pages 417-428, May.
    4. 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.
    5. 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.
    6. 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.
    7. Stephen C. Graves & Sean P. Willems, 2008. "Strategic Inventory Placement in Supply Chains: Nonstationary Demand," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 278-287, March.
    8. 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.
    9. 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.
    10. Guillermo Gallego & Paul Zipkin, 1999. "Stock Positioning and Performance Estimation in Serial Production-Transportation Systems," Manufacturing & Service Operations Management, INFORMS, vol. 1(1), pages 77-88.
    11. Tian, Feng & Willems, Sean P. & Kempf, Karl G., 2011. "An iterative approach to item-level tactical production and inventory planning," International Journal of Production Economics, Elsevier, vol. 133(1), pages 439-450, September.
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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. 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.
    3. Kumar, Kunal & Aouam, Tarik, 2019. "Extending the strategic safety stock placement model to consider tactical production smoothing," European Journal of Operational Research, Elsevier, vol. 279(2), pages 429-448.
    4. 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).
    5. Schuster Puga, Matías & Minner, Stefan & Tancrez, Jean-Sébastien, 2019. "Two-stage supply chain design with safety stock placement decisions," International Journal of Production Economics, Elsevier, vol. 209(C), pages 183-193.
    6. Johnson, Andrew & Carnovale, Steven & Song, Ju Myung & Zhao, Yao, 2021. "Drivers of fulfillment performance in mission critical logistics systems: An empirical analysis," International Journal of Production Economics, Elsevier, vol. 237(C).
    7. Yazdani, Majid & Aouam, Tarik, 2023. "Shipment planning and safety stock placement in maritime supply chains with stochastic demand and transportation times," International Journal of Production Economics, Elsevier, vol. 263(C).
    8. 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.
    9. Zied Bahroun & Nidhal Belgacem, 2019. "Determination of dynamic safety stocks for cyclic production schedules," Operations Management Research, Springer, vol. 12(1), pages 62-93, June.
    10. Shahabi, Mehrdad & Tafreshian, Amirmahdi & Unnikrishnan, Avinash & Boyles, Stephen D., 2018. "Joint production–inventory–location problem with multi-variate normal demand," Transportation Research Part B: Methodological, Elsevier, vol. 110(C), pages 60-78.
    11. Riyadh Jamegh & AllaEldin Kassam & Sawsan Sabih, 2019. "Employment of advanced approach to control inventory level by monitoring Safety Stock in Supply Chain under Uncertain environment," Proceedings of International Academic Conferences 8711585, International Institute of Social and Economic Sciences.
    12. Fichtinger, Johannes & Chan, Claire (Wan-Chuan) & Yates, Nicola, 2019. "A joint network design and multi-echelon inventory optimisation approach for supply chain segmentation," International Journal of Production Economics, Elsevier, vol. 209(C), pages 103-111.

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