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Supply Chain Management with Guaranteed Delivery

Author

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  • Eric Logan Huggins

    (School of Business Administration, Fort Lewis College, Durango, Colorado 81301)

  • Tava Lennon Olsen

    (John M. Olin School of Business, Washington University in St. Louis, St. Louis, Missouri 63130)

Abstract

We consider a two-stage supply chain under centralized control. The downstream facility faces discrete stochastic demand and passes supply requests to the upstream facility. The upstream facility always meets the supply requests from downstream. If the upstream facility cannot meet the supply requests from inventory on hand, the shortage must be filled by expediting, which will incur per unit and setup costs. Such expediting may take the form of overtime production, which occurs at the end of the period and incurs relatively high production costs, or premium freight shipments, which involves building products at the beginning of the period they are needed and shipping them very quickly with relatively high shipping costs. We consider the case where one method of filling shortages is available and determine novel optimal inventory policies under centralized control. At both stages, threshold policies that depend only on the current inventory in the system are optimal; for the total inventory in the system, a base-stock policy is optimal. Numerical analysis provides insight into the optimal policies and allows us to compare the supply chains under centralized and decentralized control.

Suggested Citation

  • Eric Logan Huggins & Tava Lennon Olsen, 2003. "Supply Chain Management with Guaranteed Delivery," Management Science, INFORMS, vol. 49(9), pages 1154-1167, September.
    • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:9:p:1154-1167
    DOI: 10.1287/mnsc.49.9.1154.16573
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Yuqian Xu & Lingjiong Zhu & Michael Pinedo, 2020. "Operational Risk Management: A Stochastic Control Framework with Preventive and Corrective Controls," Operations Research, INFORMS, vol. 68(6), pages 1804-1825, November.
    3. Qi, Lian & Lee, Kangbok, 2015. "Supply chain risk mitigations with expedited shipping," Omega, Elsevier, vol. 57(PA), pages 98-113.
    4. Juzhi Zhang & Tsan‐Ming Choi & T. C. E. Cheng, 2020. "Stochastic production capacity: A bane or a boon for quick response supply chains?," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(2), pages 126-146, March.
    5. Ankur Goel & Genaro J. Gutierrez, 2011. "Multiechelon Procurement and Distribution Policies for Traded Commodities," Management Science, INFORMS, vol. 57(12), pages 2228-2244, December.
    6. 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.
    7. Eric Logan Huggins & Tava Lennon Olsen, 2010. "Inventory Control with Generalized Expediting," Operations Research, INFORMS, vol. 58(5), pages 1414-1426, October.
    8. Klosterhalfen, Steffen T. & Dittmar, Daniel & Minner, Stefan, 2013. "An integrated guaranteed- and stochastic-service approach to inventory optimization in supply chains," European Journal of Operational Research, Elsevier, vol. 231(1), pages 109-119.
    9. José A. Ventura & Boaz Golany & Abraham Mendoza & Chenxi Li, 2022. "A multi-product dynamic supply chain inventory model with supplier selection, joint replenishment, and transportation cost," Annals of Operations Research, Springer, vol. 316(2), pages 729-762, September.
    10. Murthy Mudrageda & Frederic H. Murphy, 2007. "Designing safety space in a supply chain to handle system‐wide disruptions," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(3), pages 258-264, April.
    11. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    12. Bertazzi, Luca & Mogre, Riccardo, 2018. "Dynamic expediting of an urgent order with uncertain progress," European Journal of Operational Research, Elsevier, vol. 267(1), pages 78-85.
    13. Thomas, Barrett W. & White III, Chelsea C., 2007. "The dynamic shortest path problem with anticipation," European Journal of Operational Research, Elsevier, vol. 176(2), pages 836-854, January.
    14. Aditya Jain & Harry Groenevelt & Nils Rudi, 2010. "Continuous Review Inventory Model with Dynamic Choice of Two Freight Modes with Fixed Costs," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 120-139, August.
    15. Cui, Jianxun & Zhao, Meng & Li, Xiaopeng & Parsafard, Mohsen & An, Shi, 2016. "Reliable design of an integrated supply chain with expedited shipments under disruption risks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 95(C), pages 143-163.
    16. Avci, Mualla Gonca & Selim, Hasan, 2018. "A multi-objective simulation-based optimization approach for inventory replenishment problem with premium freights in convergent supply chains," Omega, Elsevier, vol. 80(C), pages 153-165.
    17. 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.
    18. Gunasekaran, Angappa & Ngai, Eric W.T., 2009. "Modeling and analysis of build-to-order supply chains," European Journal of Operational Research, Elsevier, vol. 195(2), pages 319-334, June.
    19. Xiuli Chao & Sridhar Seshadri & Michael Pinedo, 2008. "Optimal capacity in a coordinated supply chain," Naval Research Logistics (NRL), John Wiley & Sons, vol. 55(2), pages 130-141, March.
    20. van Asperen, E. & Dekker, R., 2010. "Flexibility in Port Selection: A Quantitative Approach Using Floating Stocks," Econometric Institute Research Papers EI 2009-44, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    21. Hua, N. Grace & Willems, Sean P., 2016. "Optimally configuring a two-stage serial line supply chain under the guaranteed service model," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 98-106.

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