Article ID: | iaor20126261 |
Volume: | 224 |
Issue: | 2 |
Start Page Number: | 293 |
End Page Number: | 301 |
Publication Date: | Jan 2013 |
Journal: | European Journal of Operational Research |
Authors: | Inderfurth Karl, Vogelgesang Stephanie |
Keywords: | stochastic processes, production, simulation, demand, inventory |
We consider a manufacturer’s stochastic production/inventory problem under periodic review and present methods for safety stock determination to cope with uncertainties that are caused by stochastic demand and different types of yield randomness. Following well‐proven inventory control concepts for this problem type, we focus on a critical stock policy with a linear order release rule. A central parameter of this type of policy is given by the safety stock value. When non‐zero manufacturing lead times are taken into account in the random yield context, it turns out that safety stocks have to be determined that vary from period to period. We present a simple approach for calculating these dynamic safety stocks for different yield models. Additionally, we suggest approaches for determining appropriate static safety stocks that are easier to apply in practice. In a simulation study we investigate the performance of the proposed safety stock variants.