The Effect of Commonality on Safety Stock in a Simple Inventory Model

Baker, Kenneth R.; Magazine, Michael J.; Nuttle, Henry L. W.

doi:10.1287/mnsc.32.8.982

Cited by 252 publications

(119 citation statements)

References 6 publications

Supporting

Mentioning

114

Contrasting

Unclassified

Order By: Relevance

“…Baker et al (1986), Gerchak et al (1988) and Gerchak and Henig (1986) all consider optimal ordering and rationing policies for a common component in an assemble-to-order environment. Most of these papers consider a single period model with multiple end products having both a common and a product specific component.…”

Section: Literature Reviewmentioning

confidence: 99%

A Threshold Inventory Rationing Policy for Service-Differentiated Demand Classes

Deshpande¹,

Cohen

Donohue³

2003

Management Science

232

222

View full text Add to dashboard Cite

Motivated by a study of the logistics systems used to manage consumable service parts for the U.S. military, we consider a static threshold-based rationing policy that is useful when pooling inventory across two demand classes characterized by different arrival rates and shortage (stockout and delay) costs. The scheme operates as a (Q, r) policy with the following feature. Demands from both classes are filled on a first-comefirst-serve basis as long as on-hand inventory lies above a threshold level K. Once on-hand inventory falls below this level, low priority (i.e., low shortage cost) demand is backordered while high priority demand continues to be filled. We analyze this static policy first under the assumption that backorders are filled according to a special threshold clearing mechanism. Structural results for the key performance measures are established to enable an efficient solution algorithm for computing stock control and rationing parameters (i.e., Q, r, and K). Numerical results confirm that the solution under this special threshold clearing mechanism closely approximates that of the priority clearing policy. We next highlight conditions where our policy offers significant savings over traditional 'round-up' and 'separate stock' policies encountered in the military and elsewhere. Finally, we develop a lower bound on the cost of the optimal rationing policy. Numerical results show that the performance gap between our static threshold policy and the optimal policy is small in environments typical of the military and high technology industries.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

A Threshold Inventory Rationing Policy for Service-Differentiated Demand Classes

Deshpande¹,

Cohen

Donohue³

2003

Management Science

232

222

View full text Add to dashboard Cite

show abstract

“…Based on these relationships, it can be argued that not all units in the pool of the common components, y 5 , may be shared by both products; rather only a portion of y 5 provides the benefits of risk pooling. As y 3 < y 5 , not more than y 3 A complementing perspective is to consider the reduction in inventory resulting from component sharing. With independent products, y 5 = y 3 + y 4 .…”

Section: Propertymentioning

confidence: 99%

“…The seminal paper by Baker [2] showed the effects of commonality on the number of units in stock and the need to develop new techniques (different from those used in the independent case, i.e., without common components) for solving this problem. Baker et al [3] minimized total inventory level subject to a service level requirement, and studied the effects of commonality on inventory levels. Gerchak et al [12] minimized total inventory cost subject to service level constraints.…”

Section: Introductionmentioning

confidence: 99%

The impact of component commonality on composite assembly policies

Eynan

Rosenblatt

2007

Naval Research Logistics

View full text Add to dashboard Cite

Assemble in Advance (AIA) policy reduces assembly cost due to advance planning, while Assemble to Order (ATO) policy eliminates assembly of excessive (more than demanded) units. The tradeoffs between the two policies have been studied in the past for single product environments. Moreover, it was shown that it is beneficial to employ AIA and ATO simultaneously. In this article, we study the employment of such a composite assembly policy in a multiproduct environment with component commonality. When common components are used, ATO may also enable us to benefit from the risk pooling effect. We provide important managerial insights such as: the multiperiod problem is myopic and changes in inventory levels due to the use of common components, and demonstrate the potential profit increase compared to other policies.

show abstract

“…McClain et al (1984) corrected some of Collier's methodology. Baker et al (1986) analyzed the e ect of commonality on safety stock for a system with an aggregrate service level. They assumed that product demands are independent and uniformly distributed, and showed that safety stock levels decrease if commonality is introduced.…”

Section: Introductionmentioning

confidence: 99%

“…The existing literature includes analytical models to study the e ect of commonality on safety stock (Baker et al 1986, Collier 1982, Gerchak et al 1988, McClain et al 1984 and mathematical programs to solve component design problems with simple cost structures under strong assumptions (Dogramaci 1979, Thomas 1991, Swaminathan and Tayur 1998, 1999, such as the assumption that inventory holding costs are directly related to service levels or the assumption that unit production cost and unit inventory holding cost do not increase when commonality is introduced. These models cannot be used to solve problems like the wire-harness design problem we encountered because they disregard relevant costs and make strong simplifying assumptions.…”

Section: Introductionmentioning

confidence: 99%

Optimal Commonality in Component Design

Thonemann

Brandeau

2000

Operations Research

View full text Add to dashboard Cite

Increased competition and more demanding customers have forced companies to o er a wide variety of products. Component commonality can help companies reduce the cost of providing product variety to their customers. However, determining the extent to which component commonality should be used is di cult. In this paper we present an approach to determine the optimal level of component commonality for end-product components that do not di erentiate models from the customer's perspective. The work was inspired by and applied to a wire-harness design problem faced by a major automobile manufacturer. We model the component design problem as a mathematical program that considers production, inventory holding, setup, and complexity costs (the cost in indirect functions caused by component variety). We develop two approaches to solve the problem: a branch-and-bound algorithm that can solve small-and medium-size problems optimally, and a simulated annealing algorithm that can solve large-size problems heuristically. We apply both algorithms to the wireharness design problem faced by the automobile manufacturer and to a number of randomly generated test problems. We show that an optimal design achieves high cost savings by using signiÿcantly fewer variants than a no-commonality design but signiÿcantly more variants than a full-commonality design. We apply sensitivity analysis to identify extreme conditions under which the no-commonality and full-commonality designs perform well, and we identify the key cost drivers for our application. Finally, we describe the impact of our analysis on the company's subsequent component design decisions.

show abstract

The Effect of Commonality on Safety Stock in a Simple Inventory Model

Cited by 252 publications

References 6 publications

A Threshold Inventory Rationing Policy for Service-Differentiated Demand Classes

A Threshold Inventory Rationing Policy for Service-Differentiated Demand Classes

The impact of component commonality on composite assembly policies

Optimal Commonality in Component Design

Contact Info

Product

Resources

About