Product-based service level fulfillment in a limited reporting period in case of stochastic demand and rolling schedules

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Meeting delivery dates is a major success factor in today´s competition. A contract be-tween a supplier and a buyer, a so called service-level agreement, usually contains provisions for keeping and controlling agreed service levels over a limited reporting pe-riod (e.g. a quarter). Violating these service levels often results in loss of good will, pen-alty costs, loss of future sales volume, or even the termination of the supply relationship. A well-known performance indicator for measuring and controlling on time delivery is the fill rate. In view of these new challenges the question is:Do today´s planning systems adequately support decision makers in meeting given tar-get fill rates while keeping costs low? According to simulation experiments by Thomas (2005) we know that in case of stochastic demand the fill rate realized over a limited reporting period may fall below given target fill rates substantially if the usual static safety stocks are employed. Hence, we propose dynamic safety stocks that are adapted according to the amount of stockouts observed so far in the course of rolling schedules within the reporting period. The objective is to minimize expected costs. Dynamic safety stocks will be calculated in an individual software module which can be incorporated into today´s Advanced Planning Systems (APS). These safety stocks will then serve as directives for medium and short term production planning.The project proposed here will show how to calculate suitable, product-based, dynamic safety stocks in case of unlimited capacities. Furthermore, we demonstrate how to in-clude these safety stocks in rolling schedules of capacitated medium and short term production planning of APS. This project will both extend existing inventory theory as well as help to improve the practice of production planning in case of stochastic demand. In this way it will contribute to the competitiveness of companies and supply chains.