Safety stocks in multi-stage inventory systems under different service measures

In this paper, we treat the problem of determining safety stocks in multi-stage inventory systems with normally distributed demands. The system follows a periodic review base-stock control policy. Assuming that every stockpoint satisfies a service level constraint and that no internal delays occur, we formulate the optimization problem for a general inventory system and derive properties of the optimal policy, which depend on the structure of the multi-stage system and the service measure used. Considering stockout occurrence related service levels, we find that the safety stock coverage times can only obtain values resulting from the extreme points of the solution set. Service levels representing size and duration of stockouts need less protection and are connected with problem reduction properties. The analysis of the reduced problems leads to similar extreme point properties as for stockout occurrence related service. (C) 1998 Elsevier Science B.V.