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

Salal Humair, John D. Ruark, Brian Tomlin, Sean P. Willems
2013 Interfaces  
Effective end-to-end supply chain management and network inventory optimization must account for, among other things, 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 multi-echelon supply chain networks. Our research extends the guaranteed service (GS) model of safety stock placement to allow random lead times. The main methodological
more » ... on 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 how our approach outperforms more traditional heuristics that either ignore lead time variability or consider the maximum lead time at every stage.
doi:10.1287/inte.2013.0699 fatcat:bwao7o6cjfh2ri6vzwikv2uq3q