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Concepts for safety stock determination under stochastic demand and different types of random production yield

Listed author(s):
  • Inderfurth, Karl
  • Vogelgesang, Stephanie
Registered author(s):

    We consider a manufacturer’s stochastic production/inventory problem under periodic review and present methods for safety stock determination to cope with uncertainties that are caused by stochastic demand and different types of yield randomness. Following well-proven inventory control concepts for this problem type, we focus on a critical stock policy with a linear order release rule. A central parameter of this type of policy is given by the safety stock value. When non-zero manufacturing lead times are taken into account in the random yield context, it turns out that safety stocks have to be determined that vary from period to period. We present a simple approach for calculating these dynamic safety stocks for different yield models. Additionally, we suggest approaches for determining appropriate static safety stocks that are easier to apply in practice. In a simulation study we investigate the performance of the proposed safety stock variants.

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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 224 (2013)
    Issue (Month): 2 ()
    Pages: 293-301

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    Handle: RePEc:eee:ejores:v:224:y:2013:i:2:p:293-301
    DOI: 10.1016/j.ejor.2012.07.040
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    1. Guu, Sy-Ming & Zhang, Alex X., 2003. "The finite multiple lot sizing problem with interrupted geometric yield and holding costs," European Journal of Operational Research, Elsevier, vol. 145(3), pages 635-644, March.
    2. Philip C. Jones & Timothy J. Lowe & Rodney D. Traub & Greg Kegler, 2001. "Matching Supply and Demand: The Value of a Second Chance in Producing Hybrid Seed Corn," Manufacturing & Service Operations Management, INFORMS, vol. 3(2), pages 122-137, April.
    3. Inderfurth, Karl, 2009. "How to protect against demand and yield risks in MRP systems," International Journal of Production Economics, Elsevier, vol. 121(2), pages 474-481, October.
    4. Caner TaskIn, Z. & Tamer Ünal, A., 2009. "Tactical level planning in float glass manufacturing with co-production, random yields and substitutable products," European Journal of Operational Research, Elsevier, vol. 199(1), pages 252-261, November.
    5. Burak Kazaz, 2004. "Production Planning Under Yield and Demand Uncertainty with Yield-Dependent Cost and Price," Manufacturing & Service Operations Management, INFORMS, vol. 6(3), pages 209-224, October.
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