Safety stock and issues involved: optimize safety stock in supply chains and improve materials requirements planning performance.

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National University of Singapore

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BH2006: Operation management

Literature review

Topic

Safety stock and issues involved: optimize safety stock in supply chains and improve materials requirements planning performance

Tutor                 

A/P Ye Hengqing

Student

Name                        Le Thi Thu Huong

Matric No.                 U024379U

Group                          F6

March 10, 2004

Table of content

Introduction

“Safety stock”, as the name suggests, is one of the most important instruments that help manager to be “safe”. In fact, managers are facing increasing pressure to minimize inventory costs, yet provide excellent customer service However, it is not easy to determine how much or how many stocks are considered being “safe”, when and where it should be held.. Moreover, safety stock involves in many stages and areas of production, especially multi-stage production, from the manufacturing sites to distribution sites; from independent demands to dependent demands. As a result, many scholars and authors have been attempting to explore this tough but interesting topic and other issues involved. They approached the issue of safety stock from different dimensions such as safety stock & MRP or safety stock & lot-sizing. Also, methods of studying are varied from authors to authors since those methods must serve authors’ specific objectives. Though all of these studies covered only one or few issues regarding safety stock, some of them have been proved to be successful and applicable in various areas of manufacturing. Therefore, this paper presents a comprehensive categorization and summary of major research on safety stock from year 2001 to 2004 in major operations management journals.

Categorization

As mention earlier, researcher used various/different methods and approach to gauge problems with regards to safety stock to serve certain objectives. Hence, these researches can be categorized in terms of methods or approaches or objectives.

  1.  Methods of studying

All the researches are using one of the following methods to study safety stock.

  1. Simulation modeling
  2. Mathematical modeling
  3. Case study

The most popular method is simulation modeling, in which the author makes assumptions to develop (a) models (e.g. demand model, inventory model or safety stock model) or to examine the results of simulation study.  Some papers were trying to develop a safety stock model, which to some extend might be useful for managers but fairly complicated and based on some essential assumptions. However, it is hard to evaluate the effectiveness and practicability of these models if it is not testing in a real case of a company. Therefore, some authors have convincingly provided study case in a particular company to prove the feasibility of their safety stock level model. It is the case of Kodak, which will be examined in more detail in the next section.

  1.  Safety stock and related issues

Besides the categorization by methods of studying, the research paper on safety stock can also be classified in terms of specific aspects related to safety stock. This is because safety stock is a very broad topic and it can be studied in various aspects with different views to achieve certain goals. These are topics which are covered along with safety stock:

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  1. Safety stock and management
  2. Safety stock and material requirements planning (MRP)
  3. Safety stock and performance measure
  4. Safety stock and lot-sizing
  5. Safety stock and lead-time

In fact, safety stock plays a central role in MRP so as to achieve an effective and stable scheduling. This matter is the most attracting yet challenging to researchers due to its highly necessity and importance to almost all managers, especially in manufacturing field. Along with that, the concern about managing safety stock in terms of dimensioning, positioning and replenishing is also examined carefully. It is quite understandable as manager not only cares ...

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