2012 Wagner Prize Finalist - Boston University & Logility, Inc.

Incorporating Stochastic Leadtimes into the Guaranteed Service Model of Safety Stock Optimization

Variability, in its various forms, makes supply chain management hard. Most supply chain models incorporate demand variability but fewer models account for lead time variability, particularly in multi-echelon networks. We extend the guaranteed service model of safety stock placement to allow stochastic lead times. The main methodological contribution is the creation of closed form equations for the expected safety stock in the system. The main applied contributions are the demonstration of real stochastic lead times in practice and comparison to more traditional heuristics.