Safety stock management of multistage supply chains under production capacity constraints

This thesis considers the problem of safety stock optimization for a multistage supply chain with production processes. Safety stock is held within the supply chain to cope with uncertain demands. Demand uncertainty can result in over or under-production, with resultant excess inventories or inability to meet customer needs, respectively. Under competitive market conditions, customer service level is recognized as an important index that must be monitored and maintained at a high level. Although additional inventory improves customer satisfaction, it entails increased inventory holding cost and thus these levels must be suitably optimized. The problem of safety stock management for single location of the supply chain can be formulated as an optimization that seeks tradeoffs between the inventory holding cost and the penalty for the inability to meet customer demands (or outsourcing cost). In multistage supply chain, while service level provided to customers is estimated by the transactions conducted at the last (or terminal) stage that faces customer demands, the service level is also affected by the safety stocks held at the upstream stages and thus the service levels of those stages, as well as the safety stocks held at the last stage. The problem of the safety stock management in multistage supply chains, therefore, should be addressed with a supply chain-wide view rather than isolated single location view. In this thesis, a standard procedure towards the optimal safety stock management in a multistage supply chain is proposed and a set of computational frameworks to fulfill the integrated safety stock management is developed with a focus on the application to the process systems industry