An Application of a Cost Minimization Model in Determining Safety Stock Level and Location

Authors: Bahareh Amirjabbari, Nadia Bhuiyan

Abstract:

In recent decades, the lean methodology, and the development of its principles and concepts have widely been applied in supply chain management. One of the most important strategies of being lean is having efficient inventory within the chain. On the other hand, managing inventory efficiently requires appropriate management of safety stock in order to protect against increasing stretch in the breaking points of the supply chain, which in turn can result in possible reduction of inventory. This paper applies a safety stock cost minimization model in a manufacturing company. The model results in optimum levels and locations of safety stock within the company-s supply chain in order to minimize total logistics costs.

Keywords: Cost, efficient inventory, optimization, safety stock, supply chain

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1079758

References:

[1] David Taylor, "Parallel incremental transformation strategy: An Approach to the Development of Lean Supply Chains", International Journal of Logistics Research and Applications, Vol.2, No.3, 1999, pp. 305-323.
[2] R. Mason-Jones, B. Naylor, D. R. Towill, "Lean, agile or leagile? Matching your supply chain to the marketplace", International Journal of Production Research, Vol.38, No.17, 2000, pp. 4061-4070.
[3] J. Ben Naylor, M. M. Naim, D. Berry, "Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain", International Journal of Production Economics, Vol.62, 1999, pp. 107- 118.
[4] A. Agarwal, R. Shankar, M. K. Tiwari, "Modeling the metrics of lean, agile, and leagile supply chain: An ANP-based approach", European Journal of Operational Research, Vol.173, 2006, pp. 211-225.
[5] F. Qi, X. Xuejun, G. Zhiyang, "Research on Lean, Agile and Leagile supply chain", Partially supported by National Natural Science Foundation of China Grand and IOM European "Asia-Link Programme", 2007, pp. 4902-4905.
[6] Y. Chun Wu, "Lean manufacturing: a perspective of lean suppliers", International Journal of Operations & Production Management, Vol.23, No.11, 2003, pp. 1349-1376.
[7] S. Wu, H. M. Wee, "How Lean supply chain effects product cost and quality- A case study of the Ford Motor Company", 6th International Conference on Service Systems and Service Management, 2009 , pp. 236-241.
[8] S. T. Crino, D. J. McCarthy, J. D. Carier, "Lean Six Sigma for supply chain management as applied to the Army Rapid Fielding Initiative", 1st Annual IEEE Systems Conference, April 2007 , pp. 1-7.
[9] E. D. Adamides, N. Karacapilidis, H. Pylarinou, D. Koumanakos, "Supporting collaboration in the development and management of lean supply networks", Production Planning & Control, Vol. 19, No.1, January 2008 , pp. 35-52.
[10] Y. Kainuma, N. Tawara, "A multiple attribute utility theory approach to lean and green supply chain management", International Journal of Production Economics, Vol.101, 2006, pp. 99-108.
[11] Richard Lamming, "Squaring lean supply with supply chain management", International Journal of Operations & Production Management, Vol.16, No.2, 1996, pp. 183-196.
[12] P. McCullen, D. Towill, "Achieving lean supply through agile manufacturing", Integrated Manufacturing Systems, 2001, pp. 524-533.
[13] Hongmai Wu, "The Lean manufacture research in environment of the supply chain of modern industry engineering", 16th Conference on Industrial Engineering and Engineering Management, 2009, pp. 297- 300.
[14] R. Cagliano, F. Caniato, G. Spina, "Lean, Agile and traditional supply: how do they impact manufacturing performance?", Journal of Purchasing & Supply Management, Vol.10, 2004, pp. 151-164.
[15] L. O. Aleotti Maia, R. Y. Qassim, "Minimum cost safety stocks for frequent delivery manufacturing", International Journal of Production Economics, October 1998, pp. 233-236.
[16] R. "Nat" Natarajan, S. K. Goyal, "Safety stocks in JIT environments", International Journal of Operations & Production Management, Vol. 14, No.10, 1994 , pp. 64-71.
[17] Stefan Minner, "Dynamic programming algorithms for multi-stage safety stock optimization", OR Specktrum, Vol.19, No.4, 1997, pp. 261-271.
[18] A. P. Kanyalkar, G. K. Adil, "Determining the optimum safety stock under rolling schedules for capacitated multi-item production systems", International Journal of Services and Operations Management, Vol. 5, No.4, 2009 , pp. 498-519.
[19] J. Y. Jung, G. Blau, J. F. Pekny, G. V. Reklaitis, D. Eversdyk, "Integrated safety stock management for multi-stage supply chains under production capacity constraints", Computers and Chemical Engineering, Vol.32, 2008 , pp. 2570-2581.
[20] Q. y. Li, S. J. Li, "A dynamic model of the safety stock under VMI", Proceedings of the Eighth International Conference on Machine Learning and Cybernetics, July 2009, pp. 1304-1308.
[21] L. Ma, M. Lin, "Determination of safety stock for power enterprises under uncertainty", International Symposium on Computer Science and Computational Technology, 2008, pp. 92-94.
[22] R. Patel, L. L. R. Rodrigues, "Optimizing safety stock in manufacturing supply chain management: A system dynamics approach", 12th International Conference on Computer Modelling and Simulation, 2010, pp. 386-391.
[23] X. Zhao, F. Lai, T. S. Lee, "Evaluation of safety stock methods in multilevel material requirements planning (MRP) systems", Production Planning & Control, Vol. 12, No.8, 2001, pp. 794-803.
[24] R. D. Badinelli, "Optimal safety-stock investment through subjective evaluation of stockout costs", Decision Sciences, Vol. 17, 1986, pp. 312-328.
[25] B. Desmet, E-H Aghezzaf, H. Vanmaele, "A normal approximation for safety stock optimization in a two-echelon distribution system", Journal of the Operational Research Society, Vol.61, No.1, 2010, pp. 156-163.
[26] K. Inderfurth, "Safety stock optimization in multi-stage inventory systems", International Journal of Production Economics, Vol.24, 1991, pp. 103-113.
[27] K. Inderfurth, "Multistage safety stock planning with item demands correlated across products and through time", Production and Operations Management, Vol. 4, No.2, 1995, pp. 127-144.
[28] E. A. Silver, D. F. Pyke, R. Peterson, "Inventory management and production planning and scheduling (Book style)", 3rd ed., 1998, pp. 241-247.
[29] Q. Long, L. F. Liu, L. Q. Meng, W. Chen, "Logistics cost optimized election in the manufacturing process based on ELECTURE- II Algorithm", Proceedings of the IEEE International Conference on Automation and Logistics, August 2009 , pp. 2055-2059.
[30] J. Paul Dittman, R. Slone, John T. Mentzer, "Supply chain risk: It-s time to measure it
[Online]", February 2010, Available: http://blogs.hbr.org/cs/2010/02/is_your_supply_chain_at_risk_1.html
[31] John J.Coyle, Edward J.Bardi, C.John Langley, "Supply chain management: a logistics perspective (Book style)", 2009, Chapter 8, pp. 297.
[32] "The importance of the supply chain
[Online]", supply initiative, meeting the need for reproductive health supplies, pp. 1-2, Available: http://www.rhsupplies.org/fileadmin/user_upload/toolkit/D_Advocacy_ Tools/Fact_Sheets/facsheet_4_pdf.pdf
[33] T. Jonathan, S. E. Omosigho, "Multi-stage manufacturing systemresearch issues and challenges
[Online]", 2003, pp. 1-33, Available: http://www.hicstatistics.org/2003statsproceedings/Jonathan%20Tsetimi. pdf
[34] S. C. Graves, A. H. G. Rinnooy Kan, P. H. Zipkin, "Logistics of production and inventory (Book style)", Handbooks in Operations Research and Management Science, Vol.4, Chapter.1, 1993, pp.33.