IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v289y2021i2p533-552.html
   My bibliography  Save this article

Planning capacity and safety stocks in a serial production–distribution system with multiple products

Author

Listed:
  • Ghadimi, Foad
  • Aouam, Tarik

Abstract

This study jointly optimizes the production capacity and safety stocks in a serial production–distribution system supplying multiple products under a guaranteed service approach (GSA). The network comprises one manufacturer operating multiple workcenters, one warehouse with limited storage capacity, and one retailer. The manufacturer must efficiently allocate capacity to the workcenters under a limited budget, while the warehouse and retailer need to maintain safety stocks to achieve a target service level. For a single workcenter processing a single product, the interaction between the production lead time, storage capacity, inventory costs, and safety stock placement is characterized. When the manufacturer has multiple workcenters, the integrated problem is formulated as a non-convex program and is solved using a nested Lagrangian relaxation heuristic. The algorithm dualizes the storage constraint in the first phase and the budget constraint in the second phase. A simulation study is conducted to assess the value of the integration, and computational experiments demonstrate that the nested Lagrangian relaxation heuristic can identify optimal or near-optimal solutions in reasonable CPU times.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ejores:v:289:y:2021:i:2:p:533-552
    DOI: 10.1016/j.ejor.2020.07.024
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221720306354
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2020.07.024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    2. Pyke, David F. & Cohen, Morris A., 1993. "Performance characteristics of stochastic integrated production-distribution systems," European Journal of Operational Research, Elsevier, vol. 68(1), pages 23-48, July.
    3. Kumar, Kunal & Aouam, Tarik, 2018. "Integrated lot sizing and safety stock placement in a network of production facilities," International Journal of Production Economics, Elsevier, vol. 195(C), pages 74-95.
    4. Corey Billington & Gianpaolo Callioni & Barrett Crane & John D. Ruark & Julie Unruh Rapp & Trace White & Sean P. Willems, 2004. "Accelerating the Profitability of Hewlett-Packard's Supply Chains," Interfaces, INFORMS, vol. 34(1), pages 59-72, February.
    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. Kenneth F. Simpson, 1958. "In-Process Inventories," Operations Research, INFORMS, vol. 6(6), pages 863-873, December.
    7. Stefan Woerner & Marco Laumanns & Stephan M. Wagner, 2018. "Joint optimisation of capacity and safety stock allocation," International Journal of Production Research, Taylor & Francis Journals, vol. 56(13), pages 4612-4628, July.
    8. 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.
    9. Bex George Thomas & Srinivas Bollapragada, 2010. "General Electric Uses an Integrated Framework for Product Costing, Demand Forecasting, and Capacity Planning of New Photovoltaic Technology Products," Interfaces, INFORMS, vol. 40(5), pages 353-367, October.
    10. Erica L. Plambeck & Amy R. Ward, 2007. "Note: A Separation Principle for a Class of Assemble-to-Order Systems with Expediting," Operations Research, INFORMS, vol. 55(3), pages 603-609, June.
    11. Hariga, Moncer A., 2010. "A single-item continuous review inventory problem with space restriction," International Journal of Production Economics, Elsevier, vol. 128(1), pages 153-158, November.
    12. Marshall L. Fisher, 1985. "An Applications Oriented Guide to Lagrangian Relaxation," Interfaces, INFORMS, vol. 15(2), pages 10-21, April.
    13. 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.
    14. Marshall L. Fisher, 1981. "The Lagrangian Relaxation Method for Solving Integer Programming Problems," Management Science, INFORMS, vol. 27(1), pages 1-18, January.
    15. Bretthauer, Kurt M. & Cote, Murray J., 1997. "Nonlinear programming for multiperiod capacity planning in a manufacturing system," European Journal of Operational Research, Elsevier, vol. 96(1), pages 167-179, January.
    16. Sabri Çelik & Costis Maglaras, 2008. "Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue," Management Science, INFORMS, vol. 54(6), pages 1132-1146, June.
    17. Gabriel R. Bitran & Devanath Tirupati, 1989. "Tradeoff Curves, Targeting and Balancing in Manufacturing Queueing Networks," Operations Research, INFORMS, vol. 37(4), pages 547-564, August.
    18. 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.
    19. Liu, Kaijun & Zhou, Yonghong & Zhang, Zigang, 2010. "Capacitated location model with online demand pooling in a multi-channel supply chain," European Journal of Operational Research, Elsevier, vol. 207(1), pages 218-231, November.
    20. Brian Wieland & Pat Mastrantonio & Sean P. Willems & Karl G. Kempf, 2012. "Optimizing Inventory Levels Within Intel's Channel Supply Demand Operations," Interfaces, INFORMS, vol. 42(6), pages 517-527, December.
    21. 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.
    22. Feng Yang & Bruce E. Ankenman & Barry L. Nelson, 2008. "Estimating Cycle Time Percentile Curves for Manufacturing Systems via Simulation," INFORMS Journal on Computing, INFORMS, vol. 20(4), pages 628-643, November.
    23. Leyla Ozsen & Collette R. Coullard & Mark S. Daskin, 2008. "Capacitated warehouse location model with risk pooling," Naval Research Logistics (NRL), John Wiley & Sons, vol. 55(4), pages 295-312, June.
    24. Umit Akinc & Basheer M. Khumawala, 1977. "An Efficient Branch and Bound Algorithm for the Capacitated Warehouse Location Problem," Management Science, INFORMS, vol. 23(6), pages 585-594, February.
    25. Stephen C. Graves & Tor Schoenmeyr, 2016. "Strategic Safety-Stock Placement in Supply Chains with Capacity Constraints," Manufacturing & Service Operations Management, INFORMS, vol. 18(3), pages 445-460, July.
    26. Wang, K.-J. & Wang, S.-M. & Yang, S.-J., 2007. "A resource portfolio model for equipment investment and allocation of semiconductor testing industry," European Journal of Operational Research, Elsevier, vol. 179(2), pages 390-403, June.
    27. Feng Yang & Bruce Ankenman & Barry L. Nelson, 2007. "Efficient generation of cycle time‐throughput curves through simulation and metamodeling," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(1), pages 78-93, February.
    28. Stephen C. Graves & Sean P. Willems, 2003. "Erratum: Optimizing Strategic Safety Stock Placement in Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 5(2), pages 176-177.
    29. Rajagopalan, S. & Yu, Hung-Liang, 2001. "Capacity planning with congestion effects," European Journal of Operational Research, Elsevier, vol. 134(2), pages 365-377, October.
    30. Martínez-Costa, Carme & Mas-Machuca, Marta & Benedito, Ernest & Corominas, Albert, 2014. "A review of mathematical programming models for strategic capacity planning in manufacturing," International Journal of Production Economics, Elsevier, vol. 153(C), pages 66-85.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Asmae El Mokrini & Tarik Aouam & Nadine Kafa, 2023. "A tailored aggregation strategy for inventory pooling in healthcare: evidence from an emerging market," Operations Management Research, Springer, vol. 16(1), pages 209-226, March.
    2. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. 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).
    4. 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.
    5. 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).
    6. Smirnov, Dina & van Jaarsveld, Willem & Atan, Zümbül & de Kok, Ton, 2021. "Long-term resource planning in the high-tech industry: Capacity or inventory?," European Journal of Operational Research, Elsevier, vol. 293(3), pages 926-940.
    7. Achkar, Victoria G. & Brunaud, Braulio B. & Pérez, Héctor D. & Musa, Rami & Méndez, Carlos A. & Grossmann, Ignacio E., 2024. "Extensions to the guaranteed service model for industrial applications of multi-echelon inventory optimization," European Journal of Operational Research, Elsevier, vol. 313(1), pages 192-206.
    8. 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.
    9. 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.
    10. Ali Diabat & Jean-Philippe Richard & Craig Codrington, 2013. "A Lagrangian relaxation approach to simultaneous strategic and tactical planning in supply chain design," Annals of Operations Research, Springer, vol. 203(1), pages 55-80, March.
    11. Leyla Ozsen & Mark S. Daskin & Collette R. Coullard, 2009. "Facility Location Modeling and Inventory Management with Multisourcing," Transportation Science, INFORMS, vol. 43(4), pages 455-472, November.
    12. Eruguz, Ayse Sena & Sahin, Evren & Jemai, Zied & Dallery, Yves, 2016. "A comprehensive survey of guaranteed-service models for multi-echelon inventory optimization," International Journal of Production Economics, Elsevier, vol. 172(C), pages 110-125.
    13. 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.
    14. Gihan S. Edirisinghe & Thamer Almutairi, 2023. "Multi-Echelon Inventory Optimization for Practitioners: a Predictive Global Sensitivity Analysis Approach," SN Operations Research Forum, Springer, vol. 4(2), pages 1-20, June.
    15. 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.
    16. Stephen C. Graves & Tor Schoenmeyr, 2016. "Strategic Safety-Stock Placement in Supply Chains with Capacity Constraints," Manufacturing & Service Operations Management, INFORMS, vol. 18(3), pages 445-460, July.
    17. Mazzola, Joseph B. & Neebe, Alan W., 1999. "Lagrangian-relaxation-based solution procedures for a multiproduct capacitated facility location problem with choice of facility type," European Journal of Operational Research, Elsevier, vol. 115(2), pages 285-299, June.
    18. Bian, Yuan & Lemoine, David & Yeung, Thomas G. & Bostel, Nathalie & Hovelaque, Vincent & Viviani, Jean-laurent & Gayraud, Fabrice, 2018. "A dynamic lot-sizing-based profit maximization discounted cash flow model considering working capital requirement financing cost with infinite production capacity," International Journal of Production Economics, Elsevier, vol. 196(C), pages 319-332.
    19. David Simchi-Levi & Yao Zhao, 2005. "Safety Stock Positioning in Supply Chains with Stochastic Lead Times," Manufacturing & Service Operations Management, INFORMS, vol. 7(4), pages 295-318, December.
    20. Tan Wang & L. Jeff Hong, 2023. "Large-Scale Inventory Optimization: A Recurrent Neural Networks–Inspired Simulation Approach," INFORMS Journal on Computing, INFORMS, vol. 35(1), pages 196-215, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:289:y:2021:i:2:p:533-552. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.