Construction Material Safety-Stock Determination Under Nonstationary Stochastic Demand and Random Supply Yield

Abstract

Nonstationary stochastic demand and random supply yield have led to a great challenge in construction material management. Appropriate safety stocks can cope with uncertainty in both demand and supply yield, and improve the construction cost and productivity significantly. But the safety stock is usually determined by planner's experience or rough evaluation in management practice, which results in overstock or understock situations frequently. For changing this situation, this paper focuses on analysis of the stochastic inventory control problem of construction material, and develops a general safety-stock determination approach under nonstationary stochastic demand and random supply yield. Based on the linear-order release rule and modified base-stock definition, the inventory balance equation is developed. Then, a coverage random variable, which incorporates the complete information of outstanding orders, is defined to represent the outflows and inflows to stock over risk periods. Meanwhile, the fixed-point iteration method is adopted to calculate the time-varying safety-stock level under predefined service-level (nonstockout probability) constraint. Finally, a numerical analysis is conducted to investigate the relative performance of the proposed safety-stock approach and days of supply rule. The result demonstrates a considerable service improvement and inventory decrease of the safety-stock approach.