Optimal positioning of safety stocks in MRP

Abstract

The positioning of safety stock in multi-echelon production networks operating in an MRP environment is considered. Our aim is to maximize the service level achieved for a given total amount of safety stock. Most previous research considering MRP environments has been empirical or heuristic, but the approach we take is analytic and concentrates on two network types: serial and divergent networks. Using previous results on the MRP ordering logic, we show that in serial networks the optimal policy positions all safety stock at the end stock-point. This result is independent of the stochastic nature of the demand, the type of uncertainty and the measure of service used. The analysis of divergent networks is more complicated because of the need for material rationing. We show that the optimal policy may depend on the total amount of safety stock available, the variability of the demand, the structure of the lead times, the choice of the rationing policy and the measure of service used.