Analytical insights into two-stage serial line supply chain safety stock

Effective inventory management is one of the most significant challenges facing today׳s global supply chains. Businesses are observing significant profitability gain by optimizing their inventory. This paper optimizes safety stock inventory in a two-stage serial line supply chain, inspired by real-life Cisco supply chains, under guaranteed-service safety stock model assumptions. We analytically show that the optimal safety stock levels depend on the cost and leadtime parameters of the supply chain. Intuitively, it is only worthwhile to hold safety stock inventory at the upstream stage when cost at the upstream stage is relatively low or its leadtime is relatively long. We also show that total supply chain safety stock cost can be reduced when cost allocated at the upstream stage is reduced or leadtime at the upstream stage is increased.