THE DYNAMICS OF HEDGING THE MASTER SCHEDULE

An important issue in the management of material requirements planning (MRP) systems is the location of safety stocks. In a previous paper Miller describes a hedging strategy that distributes safety stock throughout the product structure. This paper investigates the dynamic behavior of such a system in the presence of uncertain demand. Compared to holding a planned buffer only at the finished goods level, this strategy reduces inventory investment at the cost of slightly lower service. Additionally, when planned replenishment rates for safety stock are decreased, the average level of inventory is also decreased with minor loss of service.