A Supply Network Model with Base-Stock Control and Service Requirements

• Published in: Operations research Vol. 48; no. 2; pp. 216 - 232
• Main Authors: Ettl, Markus, Feigin, Gerald E, Lin, Grace Y, Yao, David D
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.03.2000; Operations Research Society of America; Institute for Operations Research and the Management Sciences
• Subjects: Approximation; Customer service; Customer services; Finished goods; Inventories; Inventory control; Inventory production, multiechelon: inventory optimization in complex supply chains; Mathematical models; Modeling; Operations research; Programming, nonlinear, applications: constrained nonlinear optimization; Queues, applications: queueing approximations for inventory applications; Queuing theory; Safety factors; Statistical analysis; Statistical variance; Streams; Studies; Supply; Supply chain management
• ISSN: 0030-364X; 1526-5463
• DOI: 10.1287/opre.48.2.216.12376

We develop a supply network model that takes as input the bill of materials, the (nominal) lead times, the demand and cost data, and the required customer service levels. In return, the model generates the base-stock level at each store—the stocking location for a part or an end-product, so as to minimize the overall inventory capital throughout the network and to guarantee the customer service requirements. The key ingredient of the model is a detailed, albeit approximate, analysis of the actual lead times at each store and the associated demand over such lead times, along with a characterization of the operation at each store via an inventory-queue model. The gradients are derived in explicit forms, and a conjugate gradient routine is used to search for the optimal solution. Several numerical examples are presented to validate the model and to illustrate its various features.