We generalize the guaranteed-service (GS) model for safety-stock placement in supply chains to include capacity constraints. We first examine the guaranteed-service model for a capacitated single-stage system with bounded demand. We characterize the optimal inventory policy, which depends on the entire demand history. Due to this complexity, we develop a heuristic, namely a constant base-stock policy with censored ordering. This is an order-up-to policy but with its replenishment orders censored by the capacity constraint. We refer to this heuristic as the modified constant base-stock policy (MCBS). We use a numerical experiment to compare the performance of the heuristic policy to the optimal policy. We find that the performance of the heuristic relative to the optimal policy improves with a tighter capacity constraint. We also observe that the performance of the heuristic itself can sometimes be improved by tightening the capacity constraint. We then use the results for a single-stage system to model a ...
['Stephen C. Graves', 'Tor Schoenmeyr']
Strategic Safety-Stock Placement in Supply Chains with Capacity Constraints