Determination of Safety Stock in Divergent Supply Chains with Non-stationary Demand Process

Abstract

In the present world, most of the firms are facing uncertain demand due to different market conditions. This type of demand can be modelled as non-stationary demand. In this paper, different multi-echelon divergent supply chain scenarios with non-stationary demand process are considered. Stock out plays an important role in supply chains; it reduces the service level of each member in a supply chain and causes high supply chain inventory cost. In order to avoid stock out in a supply chain, safety stock is to be maintained by each member. Developed simulation models for studying the operation of divergent supply chains under non-stationary demand processes. It is found that the stock out which leads to lost sales depends on two factors, i.e. the inertia of the non-stationary demand process and the structure of the divergent supply chain. In detail, the structure of the divergent supply chain is, basically, described in terms of the divergence factor. In this situation, we propose a mathematical relation to estimate safety stock by incorporating the divergence factor of the supply chain with non-stationary demand process. The performance of the supply chain against the divergence is analysed and the analysis shows that estimation of safety stock based on divergence factor can give a good estimate of the safety stock for divergent supply chain.