Planning capacity and safety stocks in a serial production–distribution system with multiple products

Abstract This study jointly optimizes the production capacity and safety stocks in a serial production–distribution system supplying multiple products under guaranteed service approach (GSA). The network comprises one manufacturer operating workcenters, warehouse with limited storage capacity, retailer. must efficiently allocate to workcenters budget, while retailer need maintain achieve target level. For single workcenter processing product, interaction between lead time, inventory costs, stock placement is characterized. When has integrated problem formulated as non-convex program solved using nested Lagrangian relaxation heuristic. algorithm dualizes constraint first phase budget second phase. A simulation conducted assess value of integration, computational experiments demonstrate that heuristic can identify optimal or near-optimal solutions reasonable CPU times.