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

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  • Inderfurth, Karl
  • Vogelgesang, Stephanie

Abstract

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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  • Inderfurth, Karl & Vogelgesang, Stephanie, 2013. "Concepts for safety stock determination under stochastic demand and different types of random production yield," European Journal of Operational Research, Elsevier, vol. 224(2), pages 293-301.
    • 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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    Cited by:

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    2. G. P. Kiesmüller & K. Inderfurth, 2018. "Approaches for periodic inventory control under random production yield and fixed setup cost," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 40(2), pages 449-477, March.
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    6. Ju, W. & Gabor, A.F. & van Ommeren, J.C.W., 2013. "Approximate Order-up-to Policies for Inventory Systems with Binomial Yield," ERIM Report Series Research in Management ERS-2013-017-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    7. Govindan, Kannan, 2015. "The optimal replenishment policy for time-varying stochastic demand under vendor managed inventory," European Journal of Operational Research, Elsevier, vol. 242(2), pages 402-423.
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    10. Cai, Jianhu & Zhong, Man & Shang, Jennifer & Huang, Weilai, 2017. "Coordinating VMI supply chain under yield uncertainty: Option contract, subsidy contract, and replenishment tactic," International Journal of Production Economics, Elsevier, vol. 185(C), pages 196-210.
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    13. Karl Inderfurth & Gudrun Kiesmüller, 2013. "Exact and heuristic linear-inflation policies for an inventory model with random yield and arbitrary lead times," FEMM Working Papers 130007, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    14. 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).
    15. Karl Inderfurth, 2015. "Safety Stocks in Centralized and Decentralized Supply Chains under Different Types of Random Yields," FEMM Working Papers 150007, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    16. Zhong, Yuanguang & Liu, Ju & Zhou, Yong-Wu & Cao, Bin & Cheng, T.C. Edwin, 2022. "Robust contract design and coordination under consignment contracts with revenue sharing," International Journal of Production Economics, Elsevier, vol. 253(C).
    17. Peter Berling & Danja R. Sonntag, 2022. "Inventory control in production–inventory systems with random yield and rework: The unit‐tracking approach," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2628-2645, June.
    18. Sonntag, Danja & Kiesmüller, Gudrun P., 2018. "Disposal versus rework – Inventory control in a production system with random yield," European Journal of Operational Research, Elsevier, vol. 267(1), pages 138-149.
    19. Yin, Zhe & Ma, Shihua, 2015. "Incentives to improve the service level in a random yield supply chain: The role of bonus contracts," European Journal of Operational Research, Elsevier, vol. 244(3), pages 778-791.
    20. Kebing Chen & Tiaojun Xiao, 2015. "Production planning and backup sourcing strategy of a buyer-dominant supply chain with random yield and demand," International Journal of Systems Science, Taylor & Francis Journals, vol. 46(15), pages 2799-2817, November.
    21. Inderfurth, K. & Kiesmüller, G.P., 2015. "Exact and heuristic linear-inflation policies for an inventory model with random yield and arbitrary lead times," European Journal of Operational Research, Elsevier, vol. 245(1), pages 109-120.
    22. Dettenbach, Marcus & Thonemann, Ulrich W., 2015. "The value of real time yield information in multi-stage inventory systems – Exact and heuristic approaches," European Journal of Operational Research, Elsevier, vol. 240(1), pages 72-83.

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