Optimal safety stock levels of subassemblies and manufacturing components

Abstract

In order to control the time to market and manufacturing costs, companies produce and purchase many parts and components before receiving customer orders. Consequently, demand forecasting is a critical decision process. Using modular product design and super bills of materials are two effective strategies for developing a reliable demand forecasting process. They reduce the probability of stockouts in diversified production contexts. Furthermore, managing and controlling safety stocks for pre-assembled modules provide an effective solution to the problem of minimizing the effects of forecast errors. This paper develops, evaluates, and applies innovative cost-based analytical models so that the optimal safety stock of modular subassemblies and components in assembly to order and manufacturing to order systems, respectively, can be rapidly quantified. The implementation of the proposed models in two industrial case applications demonstrates that they significantly reduce the safety stock inventory levels and the global logistical cost.