IDEAS home Printed from https://ideas.repec.org/a/inm/orinte/v43y2013i5p421-434.html
   My bibliography  Save this article

Incorporating Stochastic Lead Times Into the Guaranteed Service Model of Safety Stock Optimization

Author

Listed:
  • Salal Humair

    (Harvard School of Public Health, Boston, Massachusetts 02115; and School of Science and Engineering, Lahore University of Management Sciences, D.H.A. Lahore 54792, Pakistan)

  • John D. Ruark

    (Logility, Inc., Burlington, Massachusetts 01803)

  • Brian Tomlin

    (Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755)

  • Sean P. Willems

    (School of Management, Boston University, Boston, Massachusetts 02215)

Abstract

Effective end-to-end supply chain management and network inventory optimization must account for service levels, demand volatility, lead times, and lead-time variability. Most inventory models incorporate demand variability, but far fewer rigorously account for lead-time variability, particularly in multiechelon supply chain networks. Our research extends the guaranteed service model of safety stock placement to allow random lead times. The main methodological contribution is the creation of closed-form equations for the expected safety stock in the system; this includes a derivation for the early-arrival stock in the system. The main applied contributions are the demonstration of real stochastic lead times in practice and a discussion of how our approach outperforms more traditional heuristics that either ignore lead-time variability or consider the maximum lead time at each stage.

Suggested Citation

  • Salal Humair & John D. Ruark & Brian Tomlin & Sean P. Willems, 2013. "Incorporating Stochastic Lead Times Into the Guaranteed Service Model of Safety Stock Optimization," Interfaces, INFORMS, vol. 43(5), pages 421-434, October.
    • Handle: RePEc:inm:orinte:v:43:y:2013:i:5:p:421-434
    DOI: 10.1287/inte.2013.0699
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/inte.2013.0699
    Download Restriction: no
    File URL: https://libkey.io/10.1287/inte.2013.0699?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
    ---><---

    References listed on IDEAS

    as
    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. Jing-Sheng Song & Paul H. Zipkin, 1996. "Inventory Control with Information About Supply Conditions," Management Science, INFORMS, vol. 42(10), pages 1409-1419, October.
    3. 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.
    4. Robert S. Kaplan, 1970. "A Dynamic Inventory Model with Stochastic Lead Times," Management Science, INFORMS, vol. 16(7), pages 491-507, March.
    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. James R. Bradley & Lawrence W. Robinson, 2005. "Improved Base-Stock Approximations for Independent Stochastic Lead Times with Order Crossover," Manufacturing & Service Operations Management, INFORMS, vol. 7(4), pages 319-329, November.
    8. Gary D. Eppen & R. Kipp Martin, 1988. "Determining Safety Stock in the Presence of Stochastic Lead Time and Demand," Management Science, INFORMS, vol. 34(11), pages 1380-1390, November.
    9. 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.
    10. 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.
    11. David Zalkind, 1978. "Order-Level Inventory Systems with Independent Stochastic Leadtimes," Management Science, INFORMS, vol. 24(13), pages 1384-1392, September.
    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. Kumar, Anupam & Evers, Philip T., 2015. "Setting safety stock based on imprecise records," International Journal of Production Economics, Elsevier, vol. 169(C), pages 68-75.
    2. Fernando Bernstein & Yang Li & Kevin Shang, 2016. "A Simple Heuristic for Joint Inventory and Pricing Models with Lead Time and Backorders," Management Science, INFORMS, vol. 62(8), pages 2358-2373, August.
    3. 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.
    4. Bandaly, Dia & Satir, Ahmet & Shanker, Latha, 2016. "Impact of lead time variability in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 180(C), pages 88-100.
    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. 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.
    7. 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.
    8. 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.
    9. Jörn Grahl & Stefan Minner & Daniel Dittmar, 2016. "Meta-heuristics for placing strategic safety stock in multi-echelon inventory with differentiated service times," Annals of Operations Research, Springer, vol. 242(2), pages 489-504, July.
    10. 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.
    11. Goldbeck, Nils & Angeloudis, Panagiotis & Ochieng, Washington, 2020. "Optimal supply chain resilience with consideration of failure propagation and repair logistics," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    12. 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).
    13. Mahdavi, Mojtaba & Mahmoudzadeh, Mahdi & Olsen, Tava Lennon, 2023. "Efficient vs. Responsive supplier selection for functional and innovative products: A quantitative study," International Journal of Production Economics, Elsevier, vol. 255(C).
    14. 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.

    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. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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).
    8. 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.
    9. Ben-Ammar, Oussama & Bettayeb, Belgacem & Dolgui, Alexandre, 2019. "Optimization of multi-period supply planning under stochastic lead times and a dynamic demand," International Journal of Production Economics, Elsevier, vol. 218(C), pages 106-117.
    10. Alp Muharremoglu & Nan Yang, 2010. "Inventory Management with an Exogenous Supply Process," Operations Research, INFORMS, vol. 58(1), pages 111-129, February.
    11. Disney, Stephen M. & Maltz, Arnold & Wang, Xun & Warburton, Roger D.H., 2016. "Inventory management for stochastic lead times with order crossovers," European Journal of Operational Research, Elsevier, vol. 248(2), pages 473-486.
    12. 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).
    13. Chatfield, Dean C. & Pritchard, Alan M., 2018. "Crossover aware base stock decisions for service-driven systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 312-330.
    14. Lawrence W. Robinson & James R. Bradley & L. Joseph Thomas, 2001. "Consequences of Order Crossover Under Order-Up-To Inventory Policies," Manufacturing & Service Operations Management, INFORMS, vol. 3(3), pages 175-188, September.
    15. Zhou, Bin & Katehakis, Michael N. & Zhao, Yao, 2009. "Managing stochastic inventory systems with free shipping option," European Journal of Operational Research, Elsevier, vol. 196(1), pages 186-197, July.
    16. 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.
    17. Hellemans, Tim & Boute, Robert N. & Van Houdt, Benny, 2019. "Analysis of lead time correlation under a base-stock policy," European Journal of Operational Research, Elsevier, vol. 276(2), pages 519-535.
    18. Hayya, Jack C. & Bagchi, Uttarayan & Kim, Jeon G. & Sun, Daewon, 2008. "On static stochastic order crossover," International Journal of Production Economics, Elsevier, vol. 114(1), pages 404-413, July.
    19. Hansen, Ole & Transchel, Sandra & Friedrich, Hanno, 2023. "Replenishment strategies for lost sales inventory systems of perishables under demand and lead time uncertainty," European Journal of Operational Research, Elsevier, vol. 308(2), pages 661-675.
    20. 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.

    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:inm:orinte:v:43:y:2013:i:5:p:421-434. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.