Improved strategy for service level-based safety stock determination

Abstract

An alternative strategy is proposed for setting safety stocks to achieve a fixed service level. The approach involves scheduling order releases earlier in the inventory cycle instead of carrying a fixed safety stock based directly on a stockout probability. It is shown that, when combined with a fixed reorder quantity, the alternative strategy results in lower expected carrying costs for a stationary probability distribution of lead time demand.

Notes

EZEY M. DAR-EL holds the Harry Lebensfeld Chair in Industrial Engineering at the Faculty of Industrial Engineering and Management at the Technion. He has published extensively in several areas, including the design and analysis of production/assembly systems, project and FMS scheduling and productivity development, and he has authored a book entitled Productivity Improvement: Employee Involvement and Gainsharing Plans (Elsevier, 1986). Dr Dar-El received the BMechE, MEngSc and PhD from the University of Melbourne, Australia, and is a member of IIE, ORSIS, HFS and the IFPR.

CHARLES J. MALMBORG is an Associate Professor of Industrial Engineering and Opoerations Research at Rensselaer Polytechnic Institute. He is author or co-author of numerous technical publications dealing with the mathematical modelling of problems in facilities planning and materials handling, warehousing and inventory systems. He has served as Principal Investigator on major funded projects with New York State, the AT&T Foundation, the United States Navy and several private coporations. He earned the MSIE anbd PhD degrees at Georgia Tech, and the BSIEOR degree from the University of Masachusetts at Amherst. He is a member of IIE, ORSA, ASEE and IEEE.