Inventory Service Level Research Articles

A Comparison Study of Replenishment Strategies in Vendor-Managed Inventory

In a vendor-managed inventory system, the supplier rents a third party provider’s warehouse which is close to its buyer and the buyer shares the demand forecast information with the supplier. However, the relationship between inventory cost and service level is a trade-off problem. In this study, we propose a forecast forward replenishment (FFR) strategy to improve the performance of the warehouse management regarding inventory cost and service level. A simulation study is conducted to compare our proposed FFR strategy with other strategies, such as re-order point (ROP) and material requirement planning (MRP) under different combinations of demand pattern and distribution lead time. The results show that the FFR strategy outperforms the ROP and MRP strategies. A real data set is used to demonstrate the application of our proposed method. The FFR strategy yields lower inventory cost with a certain service level.

Interrelationships of merchandise performance measures as determined by merchandise plans and merchandise plan errors

The purpose of this study was to explore the interrelationships of selected merchandise performance measures as determined by merchandise plans and merchandise plan errors through development of stochastic computer simulation models. Utilising Sourcing Simulator, a merchandising analysis tool, a total of 4320 data were generated and analysed through path analysis. The findings indicate significant relationships among inventory management, service level, and profitability, which were critically influenced by the internal merchandise planning factors – assortment diversity and merchandise replenishment – and external consumer demand factors – merchandise plan errors. This study identified the significant role of volume per stock-keeping unit for an assortment (VSA) as a guideline of assortment diversity on inventory management, service level, and profitability. Well-integrated merchandise planning, considering the internal merchandise planning factors and the external consumer demand factors, is suggested for successful merchandise performance outcomes.

Trading off inventory, capacity and customer service in semi-process industries: a case study at SEPPIC

This article presents a straightforward production/inventory model that can capture the trade-offs among average inventory, production capacity and customer service levels in a semi-process industry setting. The model is based on well-known approximations from queuing literature, and it supports midterm planning procedures at SEPPIC, a large specialty chemicals company. Different features are specific to a semi-process setting, such as differences in reactor yield, variations in quality requirements across products, the need for cleaning reactors when switching between product types, and the requirement to produce products in campaign sizes that are integer multiples of the reactor’s batch size. This article discusses how SEPPIC’s operational reality is reflected in the model and illustrates the resulting insights with real-life data from two SEPPIC product families.

Integration of Just In Time (JIT) Inventory in Outpatient Pharmacy Information Systems

With the implementation of the recent Healthcare Reform Act and the increased scrutiny on the soaring costs of healthcare, medical plans are looking for ways to optimize workflows and reduce costs. Titan Healthcare is a large non-profit integrated healthcare company located in Arizona, New Mexico, Nevada, Colorado, and Texas. They provide health insurance coverage, and a broad range of comprehensive health care services. Titan Healthcare is engrossed to employ the best strategies to close performance gaps and efficiently manage their operations. To help improve their pharmacy operations, they are seeking to design and implement a new Outpatient Pharmacy Information System which will handle both dispensing and inventory functionality. From a pharmacy inventory perspective, expectations for the system are to significantly reduce inventory costs and increase service levels to their members. Titan Healthcare is currently exploring options for designing the right Outpatient Pharmacy Inventory Management System for its operations.

The Impact of Supplier Inventory Service Level on Retailer Demand

To set inventory service levels, suppliers must understand how changes in inventory service level affect demand. We build on prior research, which uses analytical models and laboratory experiments to study the impact of a supplier’s service level on demand from retailers, by testing this relationship in the field. We analyze a field experiment at the supplier Hugo Boss to determine how the supplier’s inventory service level affects demand from its retailer customers. We find increases in historical fill rate to be associated with statistically significant and managerially substantial increases in current retailer orders (i.e., demand, not just sales). Specifically, a one percentage point increase in fill rate, measured over the prior year, is associated with a statistically significant 11% increase in current retailer demand, controlling for other factors that might affect retailer demand. We explore the drivers of this demand increase, including changes in retailer assortment and order frequency. We discuss features of a retail buyer’s decision context identified through our field work that may explain the magnitude of the relationship we observe.

Optimal Pricing and Stocking Decisions for Newsvendor Problem With Value-at-Risk Consideration

Motivated by the popularity of VaR measure in financial applications, we study the classical newsvendor problem with Value-at-Risk (VaR) consideration and price-dependent demands. We first investigate the problem's structural properties and derive analytically the optimal joint stocking and pricing decisions. We then explore the difference between the optimal decisions under the VaR formulation and the classical expected profit-maximization model. Finally, we reveal an interesting analytical relationship between the inventory service level and the VaR measure. Insights are generated.

Cost-effective inventory control in a value-added manufacturing system

This paper considers the cost-effective inventory control of work-in-process (WIP) and finished products in a two-stage distributed manufacturing system. The first stage produces a common WIP, and the second stage consists of several production sites that produce differentiated products with different capacity and service level requirements. The unit inventory holding cost is higher at the second stage. This paper first uses a network of inventory-queue model to evaluate the inventory cost and service level achievable for given inventory control policy, and then derives a very simple algorithm to find the optimal inventory control policy that minimizes the overall inventory holding cost and satisfies the given service level requirements. Some managerial insights are obtained through numerical examples.

Inventory service-level optimization within distribution network design problem

We propose a sequential heuristic approach to optimize inventory service levels in a two-stage supply chain. The proposed approach deals with service level and inventory decisions, simultaneously with network design decisions, and incorporating unfulfilled demand costs in a previous inventory-location model. A two-step formulation is considered, where the first step optimizes service level and the second step addresses location and inventory decisions. Each algorithm iteration solves an inventory-location model for a fixed service level, and then the service level is updated in order to reach an equilibrium condition between operating system and unfulfilled demand costs. The algorithm converged in three iterations for a set of sample instances, obtaining the same outcome in comparison with a more intuitive, exact, but more time-consuming search procedure.

A quantitative view on how RFID can improve inventory management in a supply chain

Radio-frequency identification (RFID) as an emerging technology has generated an enormous amount of interest in the supply chain arena. There are a number of theoretical advantages of RFID technology. Inventory can be tracked more accurately in real time, resulting in reduced processing time and labour. More significantly, the complete visibility of accurate inventory data throughout the entire supply chain, from the manufacturing shop floor to warehouses to retail stores, brings opportunities for transformation and improvement in various processes of the supply chain. In this study, we investigate how these advantages can be utilised to improve the inventory performance of a supply chain. We identify the relevant results in the existing supply chain literature, and model the impact of RFID using computer simulation when we cannot find existing results. Our study provides a comprehensive view and some new insights on the potential benefits of RFID in terms of inventory reduction and service level improvement.

An inventory model for slow moving spare parts of semiconductor equipment

The complicated nature of the semiconductor manufacturing process requires high precision and thousands of spare parts. Due to the characteristics of high cost, as well as dynamic demand rate for spare parts of semiconductor equipment, spare parts inventory management is always an important issue for the equipment supplier. In this paper, we focus on the case of spare parts with high cost and low usage. Using varying lead times and machine life cycles, a simple model to evaluate the relationship between inventory level and service level is developed and a moving sum method is used to estimate the parameters of the model while only a small set of demand data is available. Then we take Applied Materials Taiwan (AMT), a major semiconductor equipment manufacturer in Taiwan, as an example to demonstrate the estimation of parameters of lead time distribution and parts demand rate and the implementation of the inventory model.

Inventory service-levels in the customer supply chain

In this paper we consider an inventory location that serves downstream nodes (e. g. production processes, regional warehouses or customers) in a supply chain. It is pointed out, that the overall optimization of logistical processes should be based on the order delivery time as a critical unifying dimension. It is shown that the standard (\alpha-), (\beta-) and (\gamma)-service-levels used in inventory theory, when considered from the point of view of a downstream node in the supply chain, provide only limited information about the delay the orders observe. A procedure for the determination of the probability distribution of the order waiting time in a discrete time periodic (r,S)-inventory system is developed. Implications for the optimization of sub-processes in the supply chain are discussed. Key words: Inventory management - Service levels - Customer order waiting time - Supply chain optimization

An integrated performance model for orderpicking systems with randomized storage

A mathematical model is formulated to capture the impact of item, equipment, storage configuration and operating parameters in less than unit load orderpicking systems. Storage area material flow models based on lot size reorder point policies are integrated with orderpicking travel time models to generate aggregate retrieval area space requirements for randomized storage systems. These results are used to develop cycle time models for single and dual command orderpicking transactions and to evaluate the impact of alternative interleaving disciplines on system performance. The combined model is applied to predict the operating performance of a lot size, reorder point stock management system with respect to item retrieval throughput capacity, physical storage space requirements, inventory service level and system responsiveness. A sample problem is used to illustrate the application of the model as a design tool in measuring the impact of alternative design and operating scenarios on expected system performance.

Relations between control chart design variables and production control

This paper develops analytic relationships between the design variables of an quality control chart and the production variables for a single-item, stochastic demand production system. Practical applications of the models developed are presented. These include, among others, finding an chart design to achieve certain inventory service level for a given production policy, or finding a production policy that maximizes the service level given an chart design. The models presented also permit studying the effect of improving the production and quality control systems through a continuous improvement program.

Some optimal designs for grouped data in reliability demonstration tests : Duan Wei and Jinn-Jomp Bau. IEEE Trans. Reliab.R-36, 600 (1987)

We investigate a three-echelon manufacturing and remanufacturing closed-loop supply chain (CLSC) constituting of a retailer, a manufacturer and a supplier. Each echelon, apart from its usual operations in the forward SC (FSC), has its own reverse logistics (RL) operations. We assume that RL information is transparent to the FSC, and the same replenishment policies are used throughout the supply chain. We focus on the impact on dynamic performance of uncertainties in the return yield, RL lead time and the product consumption lead time. Two outcomes are studied: order rate and serviceable inventory. The results suggest that higher return yield improves dynamic performance in terms of overshoot and risk of stock-out with a unit step response as input. However, when the return yield reaches a certain level, the classic bullwhip propagation normally associated with the FSC does not always hold. The longer remanufacturing and product consumption lead times result in a higher overshoot and a longer time to recover inventory, as well as more oscillation in the step response at the upstream echelons. We also study bullwhip and inventory variance when demand is a random variable. Our analysis suggests that higher return yield contributes to reduced bullwhip and inventory variance at the echelon level but for the CLSC as a whole the level of bullwhip may decrease as well as increase as it propagates along the supply chain. The reason for such behaviour is due to the interaction of the various model parameters and should be the subject of further analytical research. Furthermore, by studying the three-echelon CLSC, we produce a general equation for eliminating inventory offsets in an n-echelon CLSC. This is helpful to managers who wish to maintain inventory service levels in multi-echelon CLSCs.

Inventory Service Levels — Comparison of Measures

Inventory service levels are a concern of every inventory system. Poor service levels may result in loss of customers and sales, whereas excessive service levels result in loss of money due to large inventories. Although inventory service levels have been discussed widely in the professional literature, the emphasis has been on service levels during replenishment lead times. Overall service levels, which are much more relevant to customers, have received little attention, and the results presented are often mistaken. This article reviews measures of inventory service levels both for single and multiple items, relates single item measures during lead times to their overall counterparts, and shows that overall measures are not only more relevant to customers, but also require lower safety stock from the provider of the goods.