Supply-chain redesign to reduce safety stock levels: sequencing and merging operations

We investigate the impact of the process of manufacturing and distribution on the safety stock levels in a supply chain. A pipeline hedging method is used to derive a model for estimating the safety stock levels. We propose methods and guidelines to redesign the manufacturing and distribution process to minimize the total safety stock investment for a specified service level. The product family consisting of one product and two products is studied in detail. Conditions and insights for better supply-chain management are developed. These enable us not only to decide when a process redesigning activity is appropriate, but also to suggest the scale and the format of the process redesign. Based on the results obtained, two procedures-resequencing and merging-are developed. Finally, we demonstrate how these procedures can be extended to product families consisting of multiple products in a hierarchical manner.