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Effect of setup time reduction on supply chain safety stocks

Kunal Kumar (UGent) and Tarik Aouam (UGent)
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Abstract
In most safety stock placement models, manufacturing lead times are treated as constant and exogenous quantities. In reality, however, manufacturing lead times depend on operating policies such as batch sizing and can be decreased by systematic investments in setup time reduction. This paper considers a manufacturer supplying a distribution network and integrates strategic safety stock placement with setup time reduction and batch sizing. We formulate the integrated problem with the objective of minimizing work-in-process and inventory holding costs and setup time reduction investment. An existing dynamic programming algorithm is extended to solve this problem efficiently. Using a two-stage distribution network, we characterize analytically the impact of setup time, batch sizes and integration on optimal positioning of safety stocks. Numerical studies on a three-stage network highlight the economic value of integration and setup time reduction. Setup time reduction is shown to be highly effective when utilization is high or when it can be accomplished with small investments. The savings from integration are high when value added at the manufacturer is high, and low when the marginal cost of setup reduction is either very high or very low.
Keywords
Setup time reduction, Batch sizing, Safety stocks, Integration

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Please use this url to cite or link to this publication:

Chicago
Kumar, Kunal, and Tarik Aouam. 2018. “Effect of Setup Time Reduction on Supply Chain Safety Stocks.” Journal of Manufacturing Systems 49: 1–15.
APA
Kumar, Kunal, & Aouam, T. (2018). Effect of setup time reduction on supply chain safety stocks. JOURNAL OF MANUFACTURING SYSTEMS , 49, 1–15.
Vancouver
1.
Kumar K, Aouam T. Effect of setup time reduction on supply chain safety stocks. JOURNAL OF MANUFACTURING SYSTEMS . Elsevier ; 2018;49:1–15.
MLA
Kumar, Kunal, and Tarik Aouam. “Effect of Setup Time Reduction on Supply Chain Safety Stocks.” JOURNAL OF MANUFACTURING SYSTEMS 49 (2018): 1–15. Print.
@article{8572851,
  abstract     = {In most safety stock placement models, manufacturing lead times are treated as constant and exogenous quantities. In reality, however, manufacturing lead times depend on operating policies such as batch sizing and can be decreased by systematic investments in setup time reduction. This paper considers a manufacturer supplying a distribution network and integrates strategic safety stock placement with setup time reduction and batch sizing. We formulate the integrated problem with the objective of minimizing work-in-process and inventory holding costs and setup time reduction investment. An existing dynamic programming algorithm is extended to solve this problem efficiently. Using a two-stage distribution network, we characterize analytically the impact of setup time, batch sizes and integration on optimal positioning of safety stocks. Numerical studies on a three-stage network highlight the economic value of integration and setup time reduction. Setup time reduction is shown to be highly effective when utilization is high or when it can be accomplished with small investments. The savings from integration are high when value added at the manufacturer is high, and low when the marginal cost of setup reduction is either very high or very low.},
  author       = {Kumar, Kunal and Aouam, Tarik},
  issn         = {0278-6125},
  journal      = {JOURNAL OF MANUFACTURING SYSTEMS },
  keywords     = {Setup time reduction,Batch sizing,Safety stocks,Integration},
  language     = {eng},
  pages        = {1--15},
  publisher    = {Elsevier },
  title        = {Effect of setup time reduction on supply chain safety stocks},
  url          = {http://dx.doi.org/10.1016/j.jmsy.2018.08.001},
  volume       = {49},
  year         = {2018},
}

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