The impact of operations redesign on the safety stock investment in supply chains

This study is motivated by a real problem encountered in the manufacturing and distribution process at a local electronic manufacturer of security devices. We investigate the impact of operations redesign (i.e., operations merging) on the cost of safety stock in a supply chain. A simple safety stock method is used to derive a model for estimating safety stock levels. Our result shows that operations redesign can have a significant impact on safety stock investment. We extend and complement the existing literature in the following aspects: (i) we address the issue of safety stock deployment, i.e., we not only investigate the problem of how many operations should be delayed, but also determine which operations need to be delayed, (ii) we provide an efficient heuristic algorithm to determine which operations need to be merged, and (iii) we find the optimal operations redesign strategies under some special cases. Our analysis also reveals some important conditions and insights for better operations redesign, which enable us not only to decide when an operations redesign is appropriate, but also to suggest the scale and the format of the operations redesign.