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Safety stock placement for serial systems under supply process uncertainty

Author

Listed:
  • Bengisu Urlu

    (INSEAD)

  • Nesim K. Erkip

    (Bilkent University)

Abstract

In this study, we address safety stock positioning when demand per period is a known constant but supply is uncertain. The supply is either available or not available, while the setting is that of a periodically reviewed, serial system following a base stock policy. Each stage is allowed to operate according to the guaranteed or stochastic service model. We use a Discrete Time Markov Chain model for expressing the expected on-hand inventories for each stage, along with other terms of interest, as a function of policy parameters determined by a given service level requirement for the end product. Exact models are constructed for single-stage and two-stage systems. As the number of states for a two-stage system grows exponentially, we propose an approximation for expressing the effect of the input stage using a single parameter. A generalization for the approximation is provided for a multi-stage problem. Computational evaluations of the approximation, as well as numerical comparisons of different cases, are presented.

Suggested Citation

  • Bengisu Urlu & Nesim K. Erkip, 2020. "Safety stock placement for serial systems under supply process uncertainty," Flexible Services and Manufacturing Journal, Springer, vol. 32(2), pages 395-424, June.
    • Handle: RePEc:spr:flsman:v:32:y:2020:i:2:d:10.1007_s10696-019-09374-3
    DOI: 10.1007/s10696-019-09374-3
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    References listed on IDEAS

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