Supply Chain Management with Guaranteed Delivery

Abstract

We consider a two-stage supply chain under centralized control. The downstream facility faces discrete stochastic demand and passes supply requests to the upstream facility. The upstream facility always meets the supply requests from downstream. If the upstream facility cannot meet the supply requests from inventory on hand, the shortage must be filled by expediting, which will incur per unit and setup costs. Such expediting may take the form of overtime production, which occurs at the end of the period and incurs relatively high production costs, or premium freight shipments, which involves building products at the beginning of the period they are needed and shipping them very quickly with relatively high shipping costs. We consider the case where one method of filling shortages is available and determine novel optimal inventory policies under centralized control. At both stages, threshold policies that depend only on the current inventory in the system are optimal; for the total inventory in the system, a base-stock policy is optimal. Numerical analysis provides insight into the optimal policies and allows us to compare the supply chains under centralized and decentralized control.Expediting, Overtime, Supply Chain Coordination, Inventory, Markov Decision Processes

Production Planning Using Evolving Demand Forecasts in the Automotive Industry

“…In buyer-seller relationships where suppliers are absolutely required to satisfy the orders fully, due to contractual requirements, keeping safety stock is one of the important means to achieve this [12]. Huggins and Olsen [6] consider the scenario where order quantities are required to be met through expediting when they are unable to be met through inventory. Their research focused on optimal inventory levels when considering the balance between inventory levels and expediting costs.…”

“…Graves et al [5] focus on adjusting forecast information using changes in order release quantities to have optimal safety stock levels. Huggins and Olsen [6] address a very similar problem by balancing inventory levels with expediting costs in response to managing order release variance. Altintas and Trick [7] suggest a tool to compare different customers based on order release accuracy and bias in order to create a performance analysis of customers.…”

Supply chain risk mitigations with expedited shipping

“…Huggins and Olsen [15] investigate a two-stage supply chain, with one downstream facility and one upstream facility, under centralized control. They assume that the upstream facility can always meet the supply requests from the downstream facility.…”

“…The idea of expedited shipping has also been incorporated in many research works, such as Huggins and Olsen [15], Caggiano et al [4], and Zhou and Chao [43]. However, how this shipping option changes firms' optimal risk-mitigation strategies is still a new topic that has not yet been fully investigated.…”

Optimal capacity in a coordinated supply chain

“…Another related article is that of Huggins and Olsen [13]. They consider a two-stage supply chain where ordering of stage one must be satisfied by stage two, using emergency shipping at a setup cost and a higher unit cost if needed, the optimal ordering policy at the first stage is determined by two numbers.…”