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

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.

Authors:

• Bahareh Amirjabbari
• Nadia Bhuiyan

Keywords:

• Cost
• efficient inventory
• optimization
• safety stock
• supply chain

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.