Designing of Robust Supply Networks: The Safety Stock Placement Problem in Capacitated Supply Chains

The fierce competition in today's global business environment forces logistic managers to reduce inventory costs while maintaining a high service level. Placing a right amount of safety stocks along supply chains is necessary in order to maintain the service level from the demand uncertainty. The problem of placing safety stocks is relatively easy in uncapacitated supply chains. Many authors have made some tremendous efforts to solve the safety stock placement problem in uncapacitated supply chains. However, the problem is much more complicated when the capacity constraints come into play. In this paper, a model is developed to describe the nature of safety stock placement problem in capacitated supply chains. The relationships between excess capacities, the variability of demand and the service level are analyzed to gain further understanding to some critical factors in the problem. A solution approach is then proposed to solve the problem based on these relationships