Managing Inventory in Supply Chains with Nonstationary Demand

Authors:
John J. Neale;Sean P. Willems
Affiliations:
School of Management, Boston University, Boston, Massachusetts 02215;School of Management, Boston University, Boston, Massachusetts 02215
Venue:
Interfaces
Year:
2009

Citing 10
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Abstract

Many companies experience nonstationary demand because of short product life cycles, seasonality, customer buying patterns, or other factors. We present a practical model for managing inventory in a supply chain facing stochastic, nonstationary demand. Our model is based on the guaranteed service modeling framework. We first describe how inventory levels should adapt to changes in demand at a single stage. We then show how nonstationary demand propagates in a supply chain, allowing us to link stages and apply a multiechelon optimization algorithm designed originally for stationary demand. We describe two successful applications of this model. The first is a tactical implementation to support monthly safety stock planning at Microsoft. The second is a strategic project to evaluate the benefits of using an inventory pool at Case New Holland.