Considering the Difference of Pre-set Service Level and Actual Service Level in a Safety-stock Based SPIRP

Abstract

To deal with uncertain demand rates in stochastic periodic inventory routing problem (SPIRP), supply chain planners foresee an extra stock amount, known as “safety stock” at the retailers. This safety stock prevents stock-out from occurring and gives the supply chain planner the possibility to offer a level of service assurance to its retailers. The pre-set service level for the retailers guarantees the reliability of having the demand rates satisfied at a certain rate during the planning horizon. To prove the guaranteed service level at the retailers, the actual service level is measured through a simulation experiment. The results of the simulation show that the difference between the actual and pre-set service level does not behave linearly for the different scenarios. In addition, this non-linearity changes with the length of the planning horizon. Minimization of the difference between actual and expected service level results in saving the spent costs for the assurance of service at the retailers. In this paper, we evaluate the behavior of the actual service level compared to the pre-set service level. Also the effects on short/long term planning horizon is measured and analyzed. A case study of a distribution center is simulated to show how to optimize the inventory level and routing system with different planning horizons and pre-set service levels.