Safety stock placement in supply chains with demand forecast updates

Research output: Contribution to journalArticlepeer-review

31 Citations (Scopus)

Abstract

Supply chains are exposed to many types of risks and it may not be obvious where to keep safety stocks in the supply chain to hedge against those risks, while maintaining a high customer service level. In this paper, we develop an approach to determine the safety stock levels in supply chain systems that face demand uncertainty. We model customer demand following the Martingale Model of Forecast Evolution (MMFE). An extensive body of literature discusses the safety stock placement problem in supply chains, but most studies assume independent and identically distributed demand. Our approach is based on a simulation study in which mathematical models are solved in a rolling horizon setting. It allows determining the safety stock levels at each stage of the supply chain. Based on a numerical study, we find that a big portion of the safety stocks should be placed downstream in the supply chain to achieve a high customer service level.

Original languageEnglish
Pages (from-to)27-31
Number of pages5
JournalOperations Research Perspectives
Volume3
DOIs
Publication statusPublished - 2016

Keywords

  • Demand uncertainty
  • Safety stocks
  • Simulation-based optimization
  • Supply chains

ASJC Scopus subject areas

  • Statistics and Probability
  • Strategy and Management
  • Management Science and Operations Research
  • Control and Optimization

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