Safety stock determination based on parametric lead time and demand information
- 24 April 2009
- journal article
- research article
- Published by Informa UK Limited in International Journal of Production Research
- Vol. 48 (10), 2841-2857
- https://doi.org/10.1080/00207540902795299
Abstract
In many production environments where demand and lead times are variable, significant levels of safety stock inventory are required to assure timely production and delivery of the final product. Traditional models to determine the appropriate safety stock level may result in more safety stocks at sub-assembly and finished goods levels than necessary and thus lead to higher inventory carrying costs than desired. Such models generally incorrectly assume that the demand during the lead time follows a normal distribution. This paper revisits and analyses a re-ordering point inventory model developed by Estes ( 1973 Estes, R . 1973. The joint probability approach and reorder point determination. Journal of Production and Inventory Management, 14(2): 50–56. [Google Scholar] ) that accounts for demand and lead time variability without making any particular distributional assumptions. Instead, it focuses on historical data to determine the possible outcomes of the replenishment cycle. We compare the proposed model with the traditional model by conducting simulation analysis using three data sets obtained from an electronics manufacturer. The results indicate that the proposed model yields much closer to target service levels and lower inventory carrying costs than the traditional model, regardless of the data set used.Keywords
This publication has 20 references indexed in Scilit:
- Inventory management with variable lead-time dependent procurement costOmega, 2008
- Demand planning approaches to aggregating and forecasting interrelated demands for safety stock and backup capacity planningInternational Journal of Production Research, 2007
- Supply chain dynamics: analysis of inventory vs. order oscillations trade-offInternational Journal of Production Research, 2006
- The Distribution Free Newsboy Problem with BalkingJournal of the Operational Research Society, 1995
- The distribution free continuous review inventory system with a service level constraintComputers & Industrial Engineering, 1994
- Distribution Free Procedures for Some Inventory ModelsJournal of the Operational Research Society, 1994
- The Distribution Free Newsboy Problem: Review and ExtensionsJournal of the Operational Research Society, 1993
- A minmax distribution free procedure for the (Q, R) inventory modelOperations Research Letters, 1992
- Estimation of Inventory Re-Order Levels Using the Bootstrap Statistical ProcedureIIE Transactions, 1989
- General Approximate Solutions for some Common Inventory ModelsJournal of the Operational Research Society, 1986