A Comprehensive Survey of Guaranteed-Service Models For Multi-Echelon Inventory Optimization

1/24/2017 Acomprehensivesurveyofguaranteedservicemodelsformultiecheloninventoryoptimization
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Economics
Volume172,February2016,Pages110125
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318044||
Review
Acomprehensivesurveyofguaranteedservicemodelsfor
multiecheloninventoryoptimization
AyseSenaEruguza, ,
,EvrenSahinb, ,ZiedJemaic, ,YvesDalleryb,
Showmore
http://dx.doi.org.ezproxy.lancs.ac.uk/10.1016/j.ijpe.2015.11.017
Abstract
Manyrealworldsupplychainsaremultiechelonsystemsconsistingofseveralstagesof
procurement,manufacturing,andtransportation.Insuchsystems,itisnotobvioushow
toallocatesafetystockstomeetthetargetservicelevelsatthelowestcost.The
guaranteedservicemodel(GSM)isamongtheexistingapproachesthatallowthis
problemtobeaddressed.Althoughtheguaranteedservicemodel(GSM)was
introducedmorethan50yearsago,thelastdecadehaswitnessedagrowinginterest.
Themodelextensionsandthesolutionmethodsdevelopedhaveexpandedthe
applicabilityoftheGSM.Inthispaper,weconductacomprehensivereviewoftheGSM
literature.Weclassifytheliteraturealongthreeaxes:(1)extensionsoftheoriginalGSM
throughtherelaxationofcertainmodelingassumptions,(2)solutionmethodsdeveloped
fordifferentsupplychainstructures,and(3)industrialapplicationsandtheresults
obtainedonrealworldproblems.Finally,wediscussunsolvedissuesandsuggestfuture
researchdirections.
Keywords
GuaranteedservicemodelMultiecheloninventorysystemLiteraturereview
1.Introduction
Manyrealworldsupplychainsaremultiechelonsystems,i.e.,systemsthatconsistof
severalstageswhereeachstageisassociatedwithaprocesssuchastheprocurement,
manufacturingortransportationofitems.Suchsupplychainsoperateinenvironments
thatofteninvolvevariousuncertaintiesregardingcustomerdemand,replenishmentlead
times,andchangesinmaterial,manufacturingortransportationcosts,whichmake
controllingtheinventorymoredifficult.Safetystocksserveasalevertomitigatetherisk
ofstockoutsinthesesystems.Inamultiechelonsystem,eachstagerepresentsa
potentiallocationforholdingsafetystockinventory.
http://www.sciencedirect.com.ezproxy.lancs.ac.uk/science/article/pii/S0925527315005162?np=y 1/59
Safetystocksmustbesuitablyallocatedacrossthemultiechelonsystemtoreachthe
targetservicelevelsatthelowestcost.Onewaytodeterminethesafetystocklevel
necessaryateachstageistousesingleecheloninventorytheory(see,e.g.,Silveretal.,
1998Zipkin,2000).Singleechelonapproachesconsidereachstageindependentlyand
neglecttheinterdependenciesofservicelevelandcostperformancesofcustomer
supplierstages.Ingeneral,singleechelonapproachesmayresultinpoorcustomer
servicelevelsorleadtononcostoptimalsolutions.Multiechelonapproachesoptimize
inventorydecisionsconsideringallstagesinthesupplychainsimultaneously,fromthe
externalsuppliertothefinalcustomer(Klosterhalfen,2010).Althoughthisleadsto
significantcomputationalchallenges,suchapproachesprovidebetterresultsintermsof
thecustomerservicelevelimprovementandreductionofthetotalinventorycost.Astudy
byAberdeenGroup(2012)showsthatdeployingamultiechelonapproachwouldenable
companiestoachieve3.1%servicelevelimprovementwhilereducingthecashtocash
cycle(thetimethatelapsesbetweenpayingcashforinputmaterialsandreceivingcash
fromcustomers)by15%throughthereductionofinventory.
Multiechelonapproachesarewidelystudiedintheliteratureforallocatingsafetystocks
insupplychainsfacingcustomerdemanduncertainty.Thereexisttwomainapproaches
intheliterature,namely,thestochasticservicemodel(SSM)andtheguaranteedservice
model(GSM)approaches,whichwereintroducedbyClarkandScarf(1960)and
Simpson(1958),respectively.Thesetwoapproachesdifferintermsofgeneral
characteristics,i.e.demandpropagation,materialsflow,andtheresultingservicetime
characteristics(cf.AppendixA).TheliteraturepertainingtotheSSMapproachis
extensive.AlotofresearchhasbeendonesincetheworkofClarkandScarf(1960).
Severalsurveypapersarealsopartofthisvastliterature,see,e.g.,Diksetal.,1996
Axster,2003SimchiLeviandZhao,2012.Ontheotherhand,researchontheGSM
hasattractedincreasedinterestinrecentyears.AlthoughtheGSMapproachwas
developedmorethan50yearsago,80%oftheexistingworksonthistopichavebeen
publishedinthelastdecade.Tothebestofourknowledge,acomprehensivereview
paperontheGSMapproachdoesnotyetexist.TheconferencepaperofEruguzetal.
(2012)isafirstpartialtentativeforthiswhilethepurposeofthepresentpaperisto
provideacomprehensivereviewofmodelsandsolutionmethodsdevelopedsofarand
providefutureresearchdirectionsfortheGSM.Thestudiesconsideredinthisreview
werefoundinjournals,conferenceproceedingsandbooksusingWebofScience,
GoogleScholar,ScienceDirect,JSTOR,andSpringerLinkundersuchkeywordsas
multiecheloninventorysystem,guaranteedservice,safetystockoptimizationand
safetystockplacement.Themainjournalsinwhichtherelevantworkswerepublished
areInterfaces,Manufacturing&ServiceOperationsManagement(M&SOM),
InternationalJournalofProductionEconomics(IJPE),InternationalJournalof
ProductionResearch(IJPR),andOperationsResearch(OR)(seeFig.1).Otherworking
papersandPhDtheseswereidentifiedbasedonthepublicationsofthecorresponding
authors.Overall,almost50referencesareincludedinthisreview.
Fig.1.
NumberofpublicationsontheGSMapproachperyear.
Figureoptions
WeclassifytheGSMliteraturealongthreeaxes.Thefirstaxisreviewstheexisting
papersaccordingtotheassumptionstheyconsider.Thesecondaxisfocusesonthe
solutionmethodsdevelopedinthepapersreviewed.Finally,thethirdaxispresents
industrialapplicationsandtheresultsobtained.Itshouldbenotedthatwhenapaperfalls
intomorethanoneaxis,themajorcontributionsofthepaperarepresentedseparatelyin
therelevantsections.
Thispaperisorganizedasfollows.Section2introducestheterminologyandthe
classificationofmultiecheloninventorysystems.Italsopresentsthedifferences
betweentheexistingoptimizationapproachestoprovideageneraloverview.Section3
presentsthebasicGSMassumptionsanditsmathematicalprogrammingformulationto
introducethemodelasitoriginallyappearedintheliterature.Section4presentsthe
modelingextensionsdevelopedtodatebasedonrelaxationsoftheoriginalassumptions.
Section5reviewstheoptimalsolutionpropertiesandtheproposedsolutionmethods.
Section6presentsindustrialapplicationsoftheGSMandtheresultsobtained.Finally,
Section7drawssomeconclusionsandsuggestspotentialfutureresearchdirections.
2.Multiecheloninventoryoptimization
Thissectionintroducesthebasicterminologyrelatedtomultiechelonsystemsand
presentsthedifferencesbetweenthetwomainexistingmultiechelonapproaches.
Inamultiechelonsupplychain,eachstagerepresentsaprocess,suchasthe
procurement,manufacturingortransportationofitems.Moreover,eachstageis
consideredasapotentiallocationforholdingthestockoftheitemprocessedatthis
stage.Amultiechelonsystemcanbemodeledasanetworkinwhichnodesrepresent
stagesandarcsdenotetheprecedencerelationshipbetweenstages.Thereexistsanarc
betweentwonodesonthenetworkifanupstreamstagesuppliesadownstreamstage.
Thenumberofechelonsinsuchsystemsisthehighestnumberofnodesonapath
betweenthemostupstreamnodeandthemostdownstreamnode.Multiechelon
systemscanbeclassifiedasserial(Fig.2a),assembly(Fig.2b),distribution(Fig.2c),
generalacyclic(Fig.2d)orgeneralcyclic(Fig.2e)systemsaccordingtotheirnetwork
structure.
Fig.2.
Networkstructuresformultiechelonsupplychainsystems.
Figureoptions
Theobjectiveoftheinventoryoptimizationprobleminmultiechelonsystemsisto
minimizethetotalinventoryholdingcostbyallocatinginventoryacrossthewholesupply
chainwhileprovidingthetargetservicelevelstothefinalcustomers.Multiechelon
inventoryoptimizationmethodstakeintoaccounttheimpactthattheinventorydecision
ofagivenstagemayhaveonotherstages.Theoptimizationofinventorydecisions
acrossthesupplychainisadifficulttaskduetothenumberofinterdependentdecision
variablesandnonlinearfunctionsthatrelatetotheservicelevels.Thecomplexityof
multiecheloninventoryoptimizationisdirectlyrelatedtotherelevantnetworkstructure.It
dependsinparticularonthenumberofstagesandthetopologyofstageconnectionsin
thenetwork.Realworldsupplychainsusuallycorrespondtogeneralnetworks(see
Willems,2008)forwhichtheinventoryoptimizationrepresentsasignificant
computationalchallenge.
Researchershaveproposedtwoapproaches,namely,theSSMandtheGSM
approaches,toaddresstheproblemofallocatingsafetystocksacrossthesupplychain
underuncertainfinalcustomerdemand.Thesetwoapproachesmakedifferent
assumptionsregardinghowdemandvariationsandservicetimesaretobeaddressed.In
theSSM,thesystemdealswithalldemandconditionsinthesamemanner,i.e.,byusing
inventory.Ifsufficientitemsareavailableattheupstreamstage,theyareimmediately
deliveredtothedownstreamstagetofulfillitsdemand.Otherwise,thedownstreamstage
shouldwaitfortheunavailableitems(backordering).Thiscausesstochasticdelaysin
materialflow.Incontrast,theGSMassumesthateachstagecanquoteadeterministic
servicetimethatitcanalwayssatisfy.Theservicetimeofastagerepresentsthetime
spanbetweentheplacementofanordertothisstageandtheactualreleaseofthe
associatedorderbythisstage.Akeyassumptionwhichmakesservicetimes
deterministicisthatdemandisboundedforeverystageandforanylongperiod.If
demandexceedstheprespecifieddemandbounds,othermeasuressuchasovertime
production,subcontracting,orexpressdeliveryareassumedtobeused.
Inbothapproaches,theassumptionsregardinghowtoaddressdemandvariationsand
servicetimeshavesomeconsequences.AppendixAprovidesfurtherinformationonhow
theSSMandtheGSMdiffer.AsubtlepointregardingtheGSMisthedefinitionof
reasonableandextraordinarydemandvariations,whicharesaidtobemadebasedon
managerialexperience(seeGravesandWillems,2000).Moreover,theoriginalGSM
doesnotexplicitlymodeltheconsequencesofextraordinarymeasurestoresortwhen
demandexceedsthespecifieddemandbounds.IntheSSMapproach,inventoryisthe
onlycountermeasurethatcanbeusedtoaddressdemanduncertainty.Duetopossible
stockouts,eachstagemayoccasionallyexperienceastockoutdelayinobtainingthe
requesteditemsfromtheupstreamstage.Duetothisstochasticdelay,thereplenishment
timeforthedownstreamstageisalsostochasticevenwhenitsprocessingtimeis
deterministic.Theinventorylevelrequiredateachstagetomeetitstargetservicelevel
dependsonitsreplenishmenttime.Exactcharacterizationofthesereplenishmenttimes
ischallenging,especiallyforlargeandcomplexmultiechelonsystems,sinceastage
mighthavemultipleupstreamstagesandeachoftheupstreamstagesmightalsobe
dependentuponunreliablesuppliers(GravesandWillems,2003).
UsingtheSSMapproach,thesafetystockoptimizationproblemcanbesolvedefficiently
forserial,assembly,anddistributionsystems(seethesurveysofDiksetal.,1996
Axster,2003SimchiLeviandZhao,2012)whereassolvingtheproblemforgeneral
systemsismorechallengingunlesssomespecificassumptionsandapproximationsare
maderegardingthestockoutdelayofstages.LeeandBillington(1993),Ettletal.(2000),
andShiandZhao(2010)areexamplesofstudiesthatprovideSSMformulationsfor
generalsystemsthathaveledtosuccessfulapplicationsinindustry(seeGlasserman
andTayur,1995Linetal.,2000DeKoketal.,2005).TheGSMisthesecondalternative
thathasbeenrecentlyappliedtoseveralrealwordsupplychains.Onereasonforthe
widerapplicationoftheGSMinindustryisitscomputationalefficiencyintermsofsystem
optimization.Managersseemalsocomfortablewiththenotionofguaranteedservice
timedespitetheeventualsafetystockcostincreasesthatstemfromthisassumption
(GravesandWillems,2000).
SeveralpapersexplicitlycomparetheSSMandtheGSMapproachesandprovidefurther
insights.GravesandWillems(2003)illustratethecontrastbetweenthetwoapproaches
forrealworldapplications.KlosterhalfenandMinner(2007)provideacomparisonofthe
twoapproachesforaserialsystemincludingthecostofextraordinarymeasuresinthe
GSM.Theythenextendthisworktotwoechelondistributionsystems(Klosterhalfenand
Minner,2010).TheirsimulationresultsshowthattheGSMapproachyieldsabetter
performanceformoderatecostsofextraordinarymeasures,largeleadtimesatthe
upstreamstageandhighserviceleveltargetsatthedownstreamstages.Recently,
Klosterhalfenetal.(2013)havedevelopedahybridserviceapproachthatcombinesthe
SSMandtheGSMapproaches.Foreachstage,theydeterminethebestapproach
betweentheSSMandtheGSMtominimizethetotalinventorycost.Theproposed
hybridserviceapproachnotonlymitigatestheriskofchoosingthewrongapproachbut
alsoimprovessolutionsobtainedusingonlyoneofthetwoapproaches.
Inthispaper,wefocusontheGSMapproach,forwhichweprovideadetailedliterature
review.ThereaderinterestedinfurtherdetailsconcerningtheSSMapproachcanreferto
thesurveypapersofDiksetal.(1996),Axster(2006),Wang(2011)andSimchiLeviand
Zhao(2012).
3.Theguaranteedservicemodel(GSM)
TheGSMapproachhasbeendevelopedforasinglestageinventorysystembyKimball
(1988),whosepaperwasoriginallywrittenin1955.Simpson(1958)extendsthis
frameworkbystudyingaserialsystem.TheGSMisthenextendedtodealwithcomplex
multiechelonsystems(see,e.g.,GravesandWillems,2000Minner,2000Humairand
Willems,2011).ThissectionpresentsasummaryoftheoriginalGSMassumptionsand
itsmathematicalprogrammingformulationtoprovidethereaderwiththefoundations
regardingtheGSMapproach.
3.1.Theoriginalassumptions
Themultiechelonsupplychainismodeledasanetworkthatcanrepresenteithera
serial,assembly,distributionorgeneralsystem.Inthisnetwork,wedenotethesetof
nodes(stages)byNandthesetofarcsbyA.TheleadtimeLjateachstagej N
representsthedurationoftheprocessbeingrealizedatstagejgiventhatallnecessary
componentsareavailable.Italsoincludestransportationtimestoplacetheprocessed
itemintoinventory.Hence,itemsininventoryareassumedtobeimmediatelyavailableto
servethedemandofdownstreamstages.IntheoriginalGSM,leadtimesareassumedto
beknownandconstantforeachstage.Theyareconsideredindependentoftheorder
sizes.Additionally,therearenocapacityconstraintsregardingphysicalspaceorthe
volumeofwork.
Eachstageinthemultiechelonsupplychainsystemisassumedtooperateundera
periodicreviewconstantbasestockpolicy.Reviewperiodsarecommontoallstages
andequaltooneperiod.Moreover,thereisnotimedelayinordering.
Externaldemandoccursonlyatthemostdownstreamstages,whicharecalleddemand
stages.LetDbethesetofdemandstages.Foreachstagej D ,demandisassumedto
bestationarywithmean j andstandarddeviation j perperiod.Themeandemand i
ataninternalstagei D canbecalculatedby
wherethescalarijrepresentsthenumberofinputitemsrequiredfromstageito
produceoneoutputitematstagej.
DemandisassumedtobeboundedwithanincreasingconcavefunctionDj(j)forevery
stagej D andforanylongperiodj=1,,Mj,whereMjisthemaximumreplenishment
time,i.e.,themaximumtimethatcouldelapsebetweentheorderingandthereceptionof
itemsatstagej.Themaximumreplenishmenttimeatstagejiscalculatedby
Wenotethatinmostoftheexistingpapers,demandboundsarespecifiedbasedona
servicelevelthatreflectsthenonstockoutprobabilityduringacertaintimeperiod(see
Section4.1).Inpractice,theexistenceofdemandboundsdoesnotimplythatdemand
canneverexceedtheselimits.Instead,itreflectsthemaximumamountofdemandthatis
satisfiedbysafetystocks.Whenthedemandexceedsthebounds,theexcessdemand
mightbehandledbyvariousextraordinarymeasuressuchassubcontracting,overtime
productionand/orexpressdelivery.However,theoriginalGSMdoesnotexplicitlymodel
whathappensinthecaseofexcessivedemand.
Eachstagej N promisesanoutboundguaranteedservicetimeS j toitsdownstream

stages.Thatis,everydemandoccurredattimetistotallysatisfiedattimet+S j .Forall
inboundarcsofstagej,theinboundservicetimeSI j definesthetimenecessaryfor
stagejtoreceiveallofitsinputsfromstagesi :(i ,j )A andtostartitsprocess.
Becausestagejcannotstartitsprocesswithoutreceivingallinputs,SI j S i shouldbe
ensuredforallarcs(i ,j )A .Wenotethatoutboundandinboundservicetimesare
decisionvariablesintheGSMoptimizationproblem.
Bydefinition,stagejobservesdemandattimetandcompletesthereplenishmentof
itemsassociatedwiththisdemandattimet+SI j +L j .However,stagejguaranteesthat
demandoccurredattimetissatisfiedattimet+S j .IfSI j +L j >S j ,thenthetimeinterval
j =SI j +L j S j ,calledthenetreplenishmenttime,shouldbecoveredbyinventories.To
providetheguaranteedservicetimeS j ,thebasestocklevelB j atstagejshouldbeset
equaltothedemandupperboundduringthenetreplenishmenttime j ,i.e.,
B j =D j (SI j +L j S j ) .Therefore,thesafetystockatstagej Nisgivenby
D j (SI j +L j S j )(SI j +L j S j ) j
3.2.Mathematicalprogrammingformulation
Lethjbetheperunitholdingcostofinventoryatstagej.Theproblemoffindingthe
optimalguaranteedoutboundandinboundservicetimesthatminimizethetotalcostof
safetystockinthesupplychainismodeledasfollows:
(1)
Subjectto
(2)
(3)
(4)
(5)
Constraint(2)makesthenetreplenishmenttimepositiveforeachstage.Constraint(3)
ensuresthattheinboundservicetimeofastageisnosmallerthantheservicetimesofits
upstreamstages.Constraint(4)ensuresthatdemandstagessatisfytheirservice
guarantee,wheresjcorrespondstothemaximumservicetimethatdemandstagejcan
quotetothefinalcustomer.Finally,with(5),allservicetimesarerestrictedtopositive
integers.TheproblemPisactuallytheminimizationofaconcavefunctionoveraclosed,
boundedconvexset.
4.Classificationoftheliteratureaccordingtothemodelingassumptions
ThissectionreviewsthevariousmodelsthatextendtheoriginalGSMtoenablereal
worldsupplychaincharacteristicstobecaptured.Thecriteriaweusetoclassifyexisting
modelsarebasedontherelaxationsoftheoriginalmodelassumptions.These
relaxationsconcernseveralassumptionsusedinthemodelandarerelativeto(1)
externaldemand,(2)leadtimes,(3)capacityconstraints,(4)servicetimes,(5)
replenishmentpolicies,and(6)extraordinarymeasures.Table1givesasummaryofthe
extensionsdeveloped.
Table1.
Classificationaccordingtomodelingassumptions.
OriginalGSM ExtensionsoftheoriginalGSM
Assumptions
Associatedrelaxations References
Stationarydemand Nonstationarydemand GravesandWillems(2008),
NealeandWillems(2009)
Considerationofevolving SchoenmeyrandGraves(2009)
demandforecasts
Demandbounds Demandboundssubjectto InderfurthandMinner(1998)
External subjecttoaCSL amodifiedfillratetarget
demand target
Knownandconstant Stochastic Inderfurth(1993)
Minner(2000)
Leadtimes Humairetal.(2013)
Capacity None Considerationofcapacity Sitompuletal.(2008),
constraints constraints Schoenmeyr(2008)
Identicalservice Differentiatedservice GravesandWillems(1998),
times times Minner(2000),Grahletal.
(2014)
Servicetimes Constant Dynamic GravesandWillems(2008)
Replenishment Periodicreview Continuousreviewbatch LiandChen(2012),Lietal.
policy basestockpolicy orderingpolicy (2013),ChenandLi(2015)
Commonreview Arbitraryandinteger BossertandWillems(2007)
periods reviewperiods
Review Knowninput Decisionvariables Eruguzetal.(2014)
periods parameters
Notmodeled Assessmentoftheir Eruguzetal.(2013)
explicitly frequency
RambauandSchade(2010),
Extraordinary KlosterhalfenandMinner(2010)
measures Modelinginsights RambauandSchade(2014)
Tableoptions
4.1.Externaldemand
TheoriginalversionoftheGSMassumesthatexternaldemandcomesfromastationary
processandthatdemandateachstagej N isboundedforanylongperiod j =1,..,M j
byanincreasingandconcavefunctionD j ( j ) .Moststudiesadoptanormaldistribution
torepresenttheexternaldemandpatternintheirapplications(see,e.g.,Simpson,1958
Inderfurth,1991GravesandWillems,2003)andspecifythedemandboundsatdemand
stagesasfollows:
(6)
wherekjisthesafetyfactorofdemandstagej D .Therelevantservicemeasureis
knownasthecycleservicelevel(CSL)inthestandardstochasticdemandinventory
literature.ForagivenCSLjatdemandnodej,kjisequaltotheinverseofthe
cumulativestandardnormalfunctionofj.Here,althoughthedemandboundis
specifiedinanalogytotheCSL,ithasadifferentinterpretation.Thatis,thechoiceofkj
indicateshowfrequentlythemanageriswillingtoresorttoextraordinarymeasuresto
coverdemandvariability(GravesandWillems,2000).
Foreachnondemandstagej D ,demandboundscanbesetbasedonfunction(6).For
instance,ifstageihasasingledownstreamstagej,then
(7)
Ifstageihasmorethanonedownstreamstage,thentheriskpoolingeffectthat
describesarelativereductionindemandvariabilityduetocombiningdemandofmultiple
downstreamstagescanalsobeincorporatedintothedemandboundofstagei(see
GravesandWillems,2000).
InderfurthandMinner(1998)aretheonlyauthorstouseaservicemeasureotherthan
theCSLtoderivethesafetyfactorinfunction(6).Theyconsideramodifiedfillrate
servicemeasurejdefinedas1(expectedunsatisfieddemandoverj)/j.Bydefinition,
thesafetyfactorkjbecomesdependentonbothjandj.Underthissetting,theyshow
thatthereexistsanadditionalcoveragepotentialatstagejthatrepresentsthemaximum
timethatcanbecoveredwithoutholdinganysafetystockatstagejandthatcanbe
computedbasedonj.
GravesandWillems(2008)extendtheGSMtopermitnonstationarydemand.They
presentreasonableconditionsunderwhichtheaveragesafetystockfornonstationary
demandisaconcavefunctionoftheinboundandoutboundservicetimes.Therefore,the
optimizationproblemforthenonstationarydemandcasebecomesequivalenttothatfor
thestationarydemandcase.ThepaperofNealeandWillems(2009)iscloselyrelatedto
theoneofGravesandWillems(2008).Theyassumethattheplanninghorizonconsists
ofdifferentphaseswhereeachphasecanrepresentastageoftheproductlifecycle,
seasonoftheyearoracompanydefinedplanninginterval(e.g.,week,month,etc.).
Externaldemandwithineachphaseisstationarywithaknownmeanandstandard
deviation.Ifthesafetyfactork j ofeachstagejisconstantovertime,thedemandbound
functionD j (tSI j L j ,tS j ) ofdemandstagejforthetimeinterval(tSI j L j ,tS j ]
correspondsto:
(8)
wherethemeanandthestandarddeviationofdemandatdemandstagejattimetare
denotedbyj(t)andj(t),respectively,anddemandisassumedtobeindependent
overdifferenttimeperiods.Analogouslytotheoriginalmodel,thedemandboundsof
theinternalstagescanbederivedfrom(8).Tosatisfytheservicetimeguaranteewith
theminimuminventorylevel,thebasestocklevelofstagejattimetSI j L j isset
asfollows:
B j (tSI j L j )=D j (tSI j L j ,tS j ) (9)
Thiscorrespondstoanadaptivebasestockpolicyinwhichthebasestocklevelvaries
overtime.Theobjectivefunction(1)canthenbereplacedwith
(10)
whereHrepresentsthenumberofperiodsinthehorizon.AsshowninNealeand
Willems(2009),theoptimizationproblemwithobjectivefunction(10)canbesolvedby
usingtheexistingalgorithmsforstationarydemandcase.
SchoenmeyrandGraves(2009)extendthenonstationarydemandprocessassumption
toevolvingforecasts.Underthisassumption,forecastsareregularlyupdatedbasedon
observedsales,advancedordersandmarketintelligence.AsinGravesandWillems
(2008),theyletthebasestocklevelsvaryovertimeandcallthisreplenishmentpolicythe
forecastbasedorderingpolicy.Theydemonstratethatundertheconsideredsetting,
theconcavitypropertyisstillvalid.
TheoriginalGSMassumesaconcaveformforthedemandboundfunction,whichmakes
thecostfunctioninproblemPconcave.Thisassumptiondoesnotenabletheintegration
ofsomeimportantrealworldfactors,suchascapacityconstraints,nonnestedreview
periodsandstochasticleadtimesintotheGSM.Toaccommodatethesefactors,Humair
andWillems,2006andHumairandWillems,2011donotimposeanystructural
limitationsforthedemandboundfunction,suchasconcavityormonotonicity.They
assumethatthecostassociatedwithastageonlydependsonthedecisionvariablesof
thisstage.Inthiscase,solutionmethodsthatsolvePusingtheconcavitypropertyofthe
objectivefunctionarenotadequate.HumairandWillems,2006andHumairandWillems,
2011alsoproposesolutionmethodsthatsolvethemodelunderarbitrarycostfunctions.
WewillfurtherpresentthesemethodsinSection5.
IntheGSMliterature,theboundeddemandassumptioniscrucialtoensuringtractability
insafetystockoptimizationproblems.Theobjectiveintheproblemsstudiedisthe
minimizationofthetotalsafetystockcostunderexternalservicelevelconstraints.As
showninthissection,intheGSMliterature,externalservicelevelconstraintsareusedto
specifythedemandboundsatdemandstages.Thedemandboundsatinternalstages
arethendirectlyderivedfromthedemandboundsofdemandstages.Thismakesthe
internalservicelevelsdependentontheexternalservicelevels.Ingeneral,researchers
neitherjustifythischoicenordiscussindetailhowtodeterminetheinternalservice
levels.
Researchershaveproposedextensionstotheoriginalmodelbyconsideringnon
stationaryandevolvingdemandpatternsorarbitrarydemandboundfunctions.Asfurther
presentedinSection6,theseextensionsenablerealworldapplicationstoberealized,as
manycompaniesexperiencethesituationsthatcanbeaddressedbytheseextensions.
4.2.Leadtimes
Asecondimportantextensionconcernstherelaxationofthedeterministicleadtime
assumption.Differentapproachesexistintheliteraturetoincorporatestochasticlead
timesintotheGSMframework.
Inderfurth(1993)developsthefirstapproachbyconsideringageneralmultiechelon
system.Heassumesthattheleadtimeateverystagej N isnormallydistributedwith
meanL j andstandarddeviation L j .Applyingawellknownresultfromsingleechelon
theory(see,e.g.,Silveretal.,1998),heproposesthefollowingtocalculatethesafety
stockatdemandstagej D :
(11)
Atnondemandstages,heclassifiestheleadtimevariabilityintoreasonableand
extraordinaryvariations.Hethenspecifiestheplannedleadtimeatnondemandstage
j Das
wherek L j relatestotheservicelevelthatdenotestheprobabilitythattheleadtime
realizationdoesnotexceedtheplannedleadtime .TheoriginalproblemPisthen
modifiedbyreplacingL j with fornondemandstagesin(1)and(2).Thus,the
objectivefunctionbecomes
Minner(2000)showsthattheapproachofInderfurth(1993)leadstolargesafetystocks.
Moreover,itrequiresthespecificationoftwodifferentservicelevelsforbothdemandand
leadtime.Hethusproposesanotherapproachinwhichonlyoneservicelevelhastobe
chosentodimensionsafetystocks.Heconsidersaserialsysteminwhichstagesare
numberedfrom1(themostupstream)ton(themostdownstream).Considering
immediatedeliverytotheexternalcustomer(i.e.,outboundservicetimeofstagen
equals0),analternativeandequivalentformulationofproblemPispresentedas:
(12)
Subjectto
(13)
(14)
(15)
Objectivefunctions(1)and(12)arethesamewhendemandboundsarespecifiedusing
(6).Constraints(13)enforcethecumulativenetreplenishmenttimeoftheinternalstages
tobelessthanthecumulativeleadtime.Constraint(14)ensuresthatthetotalcumulative
leadtimeiscovered.Constraint(15)makeallnetreplenishmenttimespositive.Minner
(2000)extendsthisformulationtocopewithjointuncertaintyindemandandleadtime.To
dothis,theyderiveaninequalityusing(11).Inparticular,theyboundthecumulativenet
replenishmenttimewiththesumofaverageleadtimesplusanadditionalcoverage
weightedbytheinverseofthesquaredcoefficientofsingleperioddemandvariation.In
caseofindependentleadtimes,thisreplacesconstaints(13)and(14)with(16)and(17),
respectively:
(16)
(17)
TheobjectivefunctionremainsconcaveusingmodelsproposedbyInderfurth(1993)and
Minner(2000).
Forgeneralmultiechelonsystemsunderstochasticleadtimes,Humairetal.(2013)
provideanappropriatesafetystockexpression.Tothisend,theycharacterizethe
shortfallexpressionanditsassociatedstatistics.Theshortfallatperiodt,d j (tSI j
L j ,tS j )isthedifferencebetweenthecumulativereplenishmentandthecumulative
shipmentbytheendofperiodt.Wenotethatevenifleadtimesaredeterministic,the
shortfallisrandombecausedemandsarerandom.Astockoutoccursiftheshortfall
exceedsthebasestocklevel.Thisiswhy,intheoriginalGSM,thebasestocklevelisset
aslargeasthedemandboundduringanytimeperiodsoflength j =SI j +L j S j .Under
stochasticleadtimes,thenetreplenishmenttimes, j ,arealsorandom.Theshortfallof
stagejispositiveonlyiftherealizednetreplenishmenttimeispositive.Humairetal.
(2013)showthat,whenthepositivepartoftheshortfallhasanapproximatelynormal
distribution,thenthesafetystockatastagejcanbegivenby:
(18)
where andfunctionsQ(.)andR(.)representthemeanandthe
varianceofthepositivenetreplenishmenttime,forwhichtheentireexpressionsare
giveninHumairetal.(2013).Wecanobservethatthesafetystockexpressionsin(11)
and(18)arestructurallysimilar.Theonlydifferenceisthattheleadtimeparameters
arereplacedwithequivalentfunctionsregardingthepositivepartofthenet
replenishmenttimerandomvariable.Furthermore,Humairetal.(2013)showthat
whenastagesservicetimeexceedsitsinboundservicetime,someleadtime
realizationsmaycauseorderstoarriveattherelevantstagebeforetheassociated
downstreamdemandhasshipped.Thisforcessomestagestocarryanadditional
stock,calledtheearlyarrivalstock.Althoughearlyarrivalstocksmayalsooccurunder
theassumptionsofInderfurth(1993)andMinner(2000),thisissueisneglectedin
thesepreviousworks.Humairetal.(2013)incorporatethisissueintotheirmodelby
definingtheobjectivefunctionasthetotalcostofsafetystockandearlyarrivalstock.
Wenotethatundertheirsetting,theobjectivefunctionmaybecomenonconcaveor
nondifferentiable.
Concerningthedifferentapproachesproposedtoincorporatestochasticleadtimesinto
theGSMmodel,wenoticethatastraightforwardmodelingapproachmayleadto
significantsafetystocks,whereasamoresophisticatedapproachmayviolatethe
concavitypropertyoftheobjectivefunctionandhenceincreasethecomputational
complexityoftheproblem.Whenimplementingtheseapproaches,theobjectivewould
betoreachthebesttradeoffbetweenthequalityofthesolutionandthecomputational
complexity.
4.3.Capacityconstraints
IntheoriginalGSM,therearenocapacityconstraintsthatlimitthequantityofitemsthat
canbeprocessedorstockedatdifferentstagesofthesupplychain.ExistingGSM
extensionsonlytakeintoaccountthecapacityconstraintsonstageprocesses.Tothe
bestofourknowledge,Sitompuletal.(2008)isamongthefirsttoaddressthisissue.
Theydefinecjasthemaximumquantityofitemsthatcanbeprocessedatstagejduring
oneperiod.TheyconsidertheCSLastheservicemeasureandanormallydistributed
demandpattern.Theyshowthatthesafetystocklevelneedstobeincreasedbya
correctionfactorjthatdependsontheexcesscapacity(cjj)overthestandard
deviationofdemandduringthenetreplenishmenttime.Hence,insteadof(6),theyset
thedemandbound atdemandstagejasfollows:
Theyuseexponentialinterpolationtoestimatethecorrectionfactorjandtesttheir
approachwithMonteCarlosimulation.Theydonotderiveanyanalyticalexpressionfor
j.Hence,theirworkremainsapproximate,andtheirfindingsarebasedonalimitedset
ofsimulations.
Schoenmeyr(2008)considersindependentlythesamerelaxationandprovidesanexact
derivationofthedemandbounds.Hedemonstratesthat,underthecapacityconstraints,
thedemandboundfunctions canbedefinedas
(19)
wherezbelongstothesetofnonnegativeintegers .In(19),functionD j ( j +z) can

bedefinedasin(6)orbyusingtheapproachespresentedinSection4.1.Underthe
basestockpolicyassumption,Schoenmeyr(2008)proposesreplacingthedemand
boundfunctionsusedin(1)by(19).Heprovesthattheconcavityoftheobjective
functionisstillvalidforthisextension.
Schoenmeyr(2008)alsosuggestsanappropriatereplenishmentpolicy,calledthe
censoredorderpolicy,whereastagedoesnotplaceafullordertotheupstreamstageif
itknowsthatitwillbeunabletoprocesssuchaquantitybecauseofitscapacity
constraint.Therefore,thebasestocklevelissetas
Numericalexperimentsshowthattheproposedpolicyisbetterthanthebasestockpolicy
intermsofcost.However,thecensoredorderpolicygivesbetterresultseveninthe
absenceofcapacityconstraints.Thisparadoxcanbeexplainedbythesmoothingeffect
ofthispolicy,whichreducesdemandvariabilityatupstreamstages.Thisshowsthatthe
basestockpolicyisnotnecessarilyoptimalforamultiechelonsystemwithguaranteed
service.ThisissueisfurtherdiscussedinSection4.5.
4.4.Servicetimes
EachstageoffersthesameservicetimeforitscustomersintheoriginalGSM.Whena
stagefacesnonidenticalcustomers,theimplementationofcustomerspecificservice
timesmightresultinbettercostperformanceforthewholesystem.GravesandWillems
(1998)describehowtotransformthemodeltopermitcustomerspecificservicetimes.
Themainideaistoinsertdummystages(nodes)betweendownstreamupstream
stages,sothateachstagestillquotesthesameservicetimetoitsdownstreamstages.
Dummystageshavezerocostandzeroleadtimebutarefreetoquoteanyvalidservice
time.Inthisapproach,theoriginaloptimizationmodelstructuredoesnotchange,
whereastheconsiderednetworkismodifiedbyinsertingdummynodes.Minner(2000)
considersthesamerelaxationfordistributionsystemsandproposestwodifferentmodel
formulations.Thedifferencebetweenthesetwoformulationsstemsfromthedifferent
interpretationsofdifferentiatedservicetimes.Inthefirstformulation,heconsidersa
straightforwardinterpretationbyallowingstageitoquotedifferentservicetimesSijforall
ofitsdirectdownstreamstagesj :(i ,j )A .Asanexample,adirectcustomer(direct
downstreamstage)withhighprioritymaybesuppliedimmediately,whilethedemandof
otherdirectcustomersmaybefulfilledafterthereplenishmentleadtime.Inthesecond
formulation,amoregeneralinterpretationisconsidered.Becauseallinternaldemands
arederivedfromfinalcustomerdemandsofdemandstages,everystageimplementsa
servicetimedirectedtotherequirementsoftherelateddemandstages.Hence,stagei
quotesaservicetimeSijthatisdifferentiatedaccordingtotherequestsofthedemand
stagej D ifthereisapathbetweeniandjinthenetwork.Hethencomparesthesetwo
formulationsandshowsthatthelatterdominatestheformerintermsofcost
performance.However,intermsofcomputationaleffortandeaseofimplementation,the
firstformulationispreferredtothesecondone.Grahletal.(2014)extendthefirst
formulationpresentedinMinner(2000)togeneralacyclicsystems.Forthesesystems,
theyshowthatthecomputationalcomplexityincreasessignificantlywithdifferentiated
servicetimes.Theresultsobtainedforrealworldinstances(datasetpresentedby
Willems,2008)showthatservicetimedifferentiationdecreasesthetotalholdingcostin
thesystem.However,theeffectissmall,withanaverage(maximal)costsavingof0.2%
(2.26%).
Intheoriginalmodel,servicetimesareassumedtobeconstantovertime.Nealeand
Willems(2009)justifythisassumptionbythefactthatitprovidesconstantsafetystock
locations,simplifiesthemodelandreducesthecomputationalrequirements.However,
GravesandWillems(2008)showthatconstantservicetimesmayleadtosuboptimal
solutionswhendemandisnonstationary.Theirstudyisbasedonachosenexampleand
doesnotgiveageneralideaofthesuboptimalityofconstantservicetimesolutions.
4.5.Replenishmentpolicies
Aspresentedin4.1and4.3,researchersproposedifferentreplenishmentpoliciesfor
situationsthatinvolvenonstationarydemandandcapacityconstraints.Inthissection,
wefocusonworksinwhichthemajorcontributionistherelaxationoftheperiodicreview
constantbasestockpolicyassumptionoftheGSM.Moreover,thissectionalsoincludes
papersthatrelaxtheoriginalassumptionsconcerningthereviewperiodsofstages.
TheoriginalGSMassumesthatreviewperiodsarecommonforallstages.Bossertand
Willems(2007)extendthismodeltoallowreviewperiodstobestagedependentwith
arbitraryintegerandknownvalues.Theyproposeanewmodelthatcanaccommodate
threedifferentperiodicreviewreplenishmentpolicies.Todothis,theyexaminethecyclic
inventorydynamicsunderstagedependentreviewperiods.Thepoliciesthatare
presentedincludeconstantbasestock,adaptivebasestock,andconstantsafetystock
targets.Aconstantbasestockpolicyimpliesordering,ateachreviewperiod,the
demandincurredsincethepreviousreviewperiod.Inanadaptivebasestockpolicy,a
stageordersuptoitsbasestocktargetateachreviewperiod.However,thebasestock
targetsvaryovertime,inaccordancewiththedemandcyclestemmingfromstage
dependentreviewperiods.Thebasestocktargetcanbedecomposedinto:(1)the
expecteddemandthatthetargetmustcover(2)safetystock.Byfixingterm(2),Bossert
andWillems(2007)defineaconstantsafetystockpolicy,whichisaspecialcaseof
adaptivepolicies.Moreover,theypresentasimplemodelthatintegratesstage
dependentreviewperiodsintotheGSMbyaggregatingthereviewperiodofeachstage
intoitsleadtime.Asaformofvalidation,theyanalyzearealworldexampleunder
constantsafetystocktargetsandshowthattheinventorylevelsobtainedbythenew
modeldifferbymorethan30%fromthosederivedthroughthesimplemodel.Thisis
becausethenewmodelrepresentstheinventorydynamicsmoreaccurately.
Eruguzetal.(2014)considerperiodicreviewconstantbasestockpoliciesinwhichthe
reviewperiodsaredecisionvariables.Theyfocusonnestedpoweroftworeview
periods.Thatis,reviewperiodsareassumedtobepoweroftwomultiplesofaperiod,
andthereviewperiodofastagecannotbegreaterthanthereviewperiodsofits
upstreamstages.Underthisassumption,theyshowhowtosetappropriatedemand
boundfunctions.Hence,theydevelopamodeltosimultaneouslydeterminetheoptimal
reviewperiodsandservicetimesthatminimizethetotalsupplychaincost,including
safetystock,cyclestock,andfixedorderingcosts.Theobjectivefunctionconsideredin
thisworkisneitherconvexnorconcave.Foreaseofcomputation,theydecomposethe
problemintotwosubproblems,thereviewperioddecisionsubproblemandtheservice
timedecisionsubproblem.Inthissetting,theservicetimedecisionsubproblemleadsto
anequivalentrepresentationoftheoriginalGSM.
LiandChen(2012)consideracontinuousreviewpolicyintheGSMframework.They
studyaserialsystemwithPoissonexternaldemand.Theyassumethateachstage
operateswithanechelon(r,nQ)policy.Underthispolicy,whentheechelonstockyofa
stagefallstoorbelowitsreorderpointr,anorderofnQunitsisplaced,whereQisthe
stagesbaseorderquantityandnisaminimumintegerwithy+nQ>r .Lietal.(2013)
extendthisworkbyconsideringassemblysystems.Becausetheyattempttooptimize
bothparametersrandQ,theresultingobjectivefunctionisneitherconvexnorconcave.
Undertheassumptionsconsidered,theorderquantitydecisionsubproblemandthe
reorderpointdecisionsubproblemcanbeanalyzedindependentlyfromeachother,
wherethereorderpointdecisionsubproblemisshowntobesimilartotheoriginalGSM.
Theyproposedynamicprogrammingalgorithmstosolvethetwosubproblems.Fora
serialsystem,ChenandLi(2015)provideanextensionbyincorporatingtheeffectsof
extraordinarymeasures(suchasexpeditingandovertime)onthematerialflowandthe
totalcostofthesystem.Theyshowthatduetotheeffectofextraordinarymeasures,the
modelcannotbedecomposedintotwoindependentorderquantityandreorderpoint
decisionsubproblems.Theydevelopaniterativeproceduretosolvethisoptimization
problem,determiningtheoptimalCSLofthesystem.
Schoenmeyr(2008)showsthattheperiodicreviewbasestockpolicyisnotnecessarily
optimalformultiechelonsystemsmodeledusingtheGSMapproach.Inhiswork,he
providessomeinsightsaboutthesuboptimalityofthisassumption.Heshowsthatanew
replenishmentpolicythatsetsupperlimitsfortheorderedquantity(censoredorder
policy)mayleadtoalowertotalinventorycost.Suchapolicysmoothesordersplacedto
theupstreamstagesandabsorbsdemandvariability.Underthispolicy,astagehavingan
orderlimitwouldneedextrasafetystocktoensureitsguaranteedservice,whilethere
wouldbelessneedforsafetystocksupstreamofthisstage.Whenbotheffectsare
accountedfor,thetotalinventorycostobtainedbythecensoredorderpolicycan
sometimesbelessthanthatobtainedbythestandardbasestockpolicy.Forthisreason,
onemaywanttosetupperlimitstoorderseveninsystemslackingcapacityconstraints.
Numericalsimulationsshowthatthebestwaytodothisistosettheupperlimitsfar
downstreaminthesupplychainusingalimitationvalueonlyslightlylargerthanthe
averagedemand.However,thisworkdoesnotprovideananalyticalmethodtoefficiently
determinethelimitationvalueanditslocationinsystemslackingcapacityconstraints.
4.6.Extraordinarymeasures
MostofGSMpapersdonotfocusonwhathappenswhendemandexceedsthepre
specifieddemandbounds.Therefore,theimpactofextraordinarymeasuresisnotclearly
presentedintheexistingpapers.InAppendixA,wediscusswhatwouldhappenwhen
excessivedemandoccurs.Inparticular,wemakethedistinctionbetweentwotypesof
extraordinarymeasures:(1)extraordinarymeasureswhichspeedupthestageprocess
andmakeuseofinflowmaterials(e.g.,expressdelivery,overtime,oraccelerated
production)(2)extraordinarymeasureswhichuseanexternalsource(e.g.,
outsourcing).Ifextraordinarymeasuresoftype(1)areavailableateachstage,the
originalunboundeddemandisassumedtobepropagatedtowardstheupstreamofthe
supplychain(see,e.g.,KlosterhalfenandMinner,2010Klosterhalfenetal.,2013Chen
andLi,2015).Ifextraordinarymeasuresoftype(2)areavailable,onlydemandwithinthe
specifieddemandboundsshouldbepropagatedthroughthesystem,whereasdemand
inexcessoftheseboundsshouldbetruncatedandhandledoutsidethenormalsupply
chain.Wenotethatonlyafewresultsareavailableregardingtheimpactofextraordinary
measuresonthemultiechelonsystemperformance.
KlosterhalfenandMinner(2010)considerextraordinarymeasuresoftype(1).Namely,
theymodeltheuseofexpressdelivery,i.e.,acceleratedtransportationwhichexpedites
theexcessamountfromthestagesownpipelinestock.Theunboundedoriginalexternal
demandisassumedtobepropagatedthroughthesystem.Theyconsiderthefollowing
assumptionregardingthespecificationofthecostassociatedwiththisextraordinary
measure.Eachunitofitemsdeliveredinexpressmodeincursafixedcostindependentof
theassociateddelay.Theirsimulationresultsdemonstratetherelevancyofthis
assumption.Moreover,theyshowthattheuseofexpressdeliverydecreasesthepipeline
stock,andtheyincludetheassociatedreductioninthecostfunction.Hence,theyprovide
anextensionwithaconcaveobjectivefunctionwhenthesafetyfactorsaregiven.Chen
andLi(2015)presentasimilarformulationtomodeltheeffectofextraordinarymeasures
suchasexpeditingandovertime.Theyincorporatethisintotheproblemofoptimizingthe
(r,Q)policyforacontinuousreviewserialinventorysystemwithPoissondemandand
fixedordercosts(seeSection4.5).
Eruguzetal.(2013)consideranextremecaseinwhichtheonlyextraordinarymeasures
availableinthesupplychainarethoseofthedemandstagesandareoftype(2).
Equivalently,onecanassumethatnoextraordinarymeasureisavailableinthesystem
andtheexcessivedemandislost.Underthissetting,Eruguzetal.(2013)aimat
assessingtheservicelevelthatresultsfromcarryingsafetystocksinthesupplychain.
Theyshowthatdemandshouldbetruncatedatdemandstagesconsideringallthe
demandboundsdefinedinthesupplychain.Indeed,propagatingunboundeddemand
acrossthesupplychainwithouttruncatingitatdemandstagesmayleadtostockoutsat
internalstages.Thiswouldbecontrarytotheguaranteedservicetimeassumption.They
showthatifdemandistruncatedatdemandstagesaccordingtoallprespecified
demandbounds,agapbetweentheeffectivelyobservedCSL(i.e.,theCSLresulting
fromholdingsafetystocks)andthetargetCSLj(i.e.,theoneusedforspecifyingthe
demandbounds)mayoccur.Inparticular,thismayhappenwhenthenetreplenishment
timesatthedownstreamupstreamstagesaredifferentandthesamesafetyfactoris
usedforallstages.SimulationstudiesforrealworldsupplychainsintroducedbyGraves
andWillems(2003)showthattheabsolutegapbetweentheeffectivelyobservedCSL
andjisupto4.76%.
RambauandSchade(2010)proposeastochasticprogrammingversionoftheGSM,
namely,stochasticguaranteedservicemodelwithrecourse(SGSM),byincorporating
extraordinarymeasuresoftype(2)intotheoriginalGSM.RambauandSchade(2014)
extendthismodeltoamoreexplicitrecourseprocess.Extraordinarymeasuresare
assumedtobeavailableatdemandstagesandcorrespondtooutsourcingfromexternal
suppliers.Externalsuppliersdonothaveunlimitedstock,theircapacityconstraintsare
takenintoaccount.Unmetexternalcustomerdemandsareassumedtobelost.They
comparetheirmodelwiththeoneofDogruetal.(2004),whichisarepresentativeSSM
thatcouldbeimplementedtocopewiththesystemunderconsideration,thespareparts
distributionsystemofalargeGermancarmanufacturer.Theirsimulationresultsshow
thattheSGSMiscosteffectivecomparedtoboththeoriginalGSMandthemodelof
Dogruetal.(2004),whilethemodelofDogruetal.(2004)outperformstheoriginalGSM.
5.Classificationoftheliteratureaccordingtothesolutionmethodsdeveloped
Thissectionintendstoclassifytheexistingliteratureaccordingtothesolutionmethods
developed.Table2summarizestheexistingworks(column1)intermsoftheir
contribution(column2),supplychainnetwork(column3)andobjectivefunction(column
4).ThecontributionsregardingsolutionmethodsdevelopedforproblemPareclustered
asfollows:(i)optimalsolutionproperties,(ii)dynamicprogramingsolutionapproaches,
(ii)mixedintegerprogramming(MIP)approaches,and(iv)heuristics.
Table2.
Classificationaccordingtocontributionsregardingoptimalsolutionpropertiesandsolutionmethods.
Contribution Supplychainnetwork
Optimal
solution DP MIP Spanning Networks
Reference property algorithm approaches Heuristics Serial Ass. Distr. tree withCoC
Simpson x x
(1958)
Inderfurth x x x
(1991)
Minner x x x x x
(1997)
Inderfurth x x x x
and
Minner
(1998)
Graves x x
and
Willems
(2000)
Minner x x x x x x
(2000)
Minner x
(2001)
Lesnaia x x x x x
(2004)
Humair x x
and
Willems
(2006)
Magnanti x
etal.
(2006)
Shuand x x
Karimi
(2009)
Humair x x
and
Willems
(2011)
Liand x
Jiang
(2012)
Grahlet x
al.(2014)
Fullsizetable
Tableoptions
AspresentedinSection3.2,problemPistheminimizationofaconcavefunctionovera
closed,boundedconvexset.Someresearchisdedicatedtoidentifyingtheoptimal
solutionpropertiesforthisproblem.Simpson(1958)provesthattheoptimalsolutionsof
theserialnetworkproblemcanonlyoccurontheextremepointsofthesolutionset.
Hence,inanoptimalsolution,astageeitherhasnosafetystockorhassufficientsafety
stocktodecoupleitfromitsdownstreamstage.Thispropertyisknownastheallor
nothingortheextremepointproperty.Inderfurth(1991)showsthevalidityofthisproperty
fordistributionnetworks.InderfurthandMinner(1998)presenttheoptimalsolution
propertiesforserial,assembly(ass.),anddistribution(distr.)networksunderdifferent
servicemeasures.Lesnaia(2004)extendstheseresultstospanningtreenetworksin
whichthereisatmostonepathofarcsbetweentwonodes.Shealsoprovidesoptimal
solutionpropertiesforaspecialcaseofgeneralnetworkscallednetworkswithclustersof
commonality(CoC).Insuchnetworks,wheneachclusterisreplacedbyasinglenode,
theresultingnetworkisaspanningtree.Minner(2000)presentstheoptimalsolution
propertiesforgeneralacyclicnetworks.Finally,Minner(2001)studiesgeneralcyclic
networksandprovidesanextendedextremepointrepresentationwiththe
synchronizationofservicetimesanditemreturns.
Usingtheextremepointproperty,theoptimalsolutionsofproblemPcanbedetermined
byenumeration.Moreover,thispropertyalsocontributestothedevelopmentofefficient
exactsolutionapproaches.Graves(1987)mentionsthatthedeterminationoftheoptimal
solutionforserialnetworksreducestoadynamicprogramoverstagesbasedonthe
extremepointproperty.Inderfurth(1991)providesadynamicprogrammingalgorithmfor
distributionsystems(seealsoInderfurth,1992).Similarly,Minner(1997)presents
dynamicprogrammingalgorithmsforserial,assembly,anddistributionsystemsunder
differentservicemeasures.Thecomplexityofthealgorithmproposedforserialsystems
isshowntobeofordern2,wherenisthenumberofnodes.Forassemblyanddistribution
systems,theworstcasecomplexityisofordern3andorder(fn)2,respectively,wheref
denotesthenumberofdemandnodes.
ThedynamicprogrammingapproachisalsousedbyGravesandWillems(2000)for
spanningtreenetworks.Thesenetworksrepresentthemostcomplextypeofmulti
echelonsystemstowhichthesinglestatevariabledynamicprogrammingapproachcan
bedirectlyapplied.However,thedynamicprogrammingalgorithmproposedbyGraves
andWillems(2000)doesnotrelyontheextremepointproperty.Hence,the
computationalcomplexityofthealgorithmproposedbyGravesandWillems(2000)isof
ordernm2,wheremisthemaximumreplenishmenttimeinthesystem.Lesnaia(2004)
improvesthisalgorithmbytakingintoaccounttheextremepointpropertyandproposesa
dynamicprogrammingalgorithmofordern3.Moreover,shealsodevelopsabranchand
boundalgorithmfornetworkswithCoCusingtheoptimalsolutionpropertiesforthese
networks.Minner(2000)showsthatgeneralacyclicnetworksleadtohigherdimensional
statesanddecisionspaceswhenusingthedynamicprogrammingalgorithm.Hegives
insightsonbothforwardrecursionandbackwardrecursiondynamicprogramming
algorithmsforthesesystems.Tominimizethenumberofstatevariables,hearguesthata
backwardrecursionispreferableifthesupplychainnetworkrepresentsdistribution
dominance,whereasaforwardrecursionisadvantageousinthecaseofassembly
dominance.Lesnaia(2004)showsthatthegeneralacyclicnetworkproblemisNPhard.
Shecombinesabranchandboundalgorithmwithdynamicprogrammingtosolvethis
problemtooptimality.
Magnantietal.(2006)statethatproblemPissolvable,inprinciple,asasequenceofMIP
problemsusingasuccessivepiecewiselinearapproximationapproach.However,a
directimplementationofthisapproachisshowntobeverytimeconsumingforgeneral
acyclicnetworks.Magnantietal.(2006)buildonthisMIPapproachtoprovideanexact
solutionmethodthatisabletosolvemoderatesizeproblems(80100stageproblem)to
optimality.Todothis,theyaddasetofredundantconstraintstotheformulationand
iterativelyrefinethepiecewiselinearapproximations.
Toreducethecomputationaleffortwhilesolvinglargegeneralacyclicnetworkproblems,
researchershavealsoproposedapproximatesolutionapproaches.First,basedonthe
MIPapproachdevelopedbyMagnantietal.(2006),ShuandKarimi(2009)propose
heuristicapproachesthatareabletosolvelargegeneralacyclicnetworkproblems
(10008000stageproblems)efficiently.Theysuggesttwodifferentheuristics:thefirst
oneusescontinuousapproximation,whilethesecondoneemploysatwopiecelinear
approximationtoapproximatetheconcaveobjectivefunction.Theseheuristicalgorithms
aregenerallyfasterthantheexactmethodproposedbyMagnantietal.(2006)andgive
solutionswithin4%and7%oftheoptimumonaverage.Forgeneralacyclicsupplychain
networkswith8000stages,thesecondalgorithmfindssolutionsinlessthan5min.
Moreover,theperformanceoftheirmethodsintermsofsolutionqualityisnearly
independentofthenetworksize.Furthermore,Minner(2000)investigatesseveral
heuristics,suchaslinearapproximation,simulatedannealing,thresholdacceptingand
tabusearch.Amongthetestedapproaches,hefindsthatthetabusearchapproach
performsbestintermsofsolutionqualityandcomputationaltime.Grahletal.(2014)
extendthisworktodifferentiatedservicetimes,forwhichthecomplexityoftheproblem
increases.Theyapplymetaheuristicssuchaslocalsearch,geneticalgorithmsand
simulatedannealingtotherealworldinstancespresentedbyWillems(2008)(from8to
2025stageproblems).Theirresultsshowthatsimulatedannealingoutperformsother
metaheuristicswithrespecttocomputationaltimeandsolutionquality.LiandJiang
(2012)proposeaheuristicapproachintegratingconstraintprogrammingwithagenetic
algorithm(thehybridCPGA).TheycomparetheirmethodwiththeheuristicsofShuand
Karimi(2009).TheirhybridCPGAisefficientforproblemsupto80stages.Ingeneral,
theirapproachisgoodinbalancingsolutionspeedandquality,whiletheheuristicsofShu
andKarimi(2009)requirelesscomputationaltime.Moreover,theyshowthatthequality
oftheheuristicsofShuandKarimi(2009)variessignificantlywiththemaximumservice
timesofdemandstages.However,theirsolutionmethodappearsrobustwithrespectto
theseparameters.
Thesolutionmethodspresentedaboveassumeaconcaveformfortheobjectivefunction
ofproblemP.Wenotethatthesemethodscanalsobeusedtosolvetheextensions
presentedinSection4forwhichtheobjectivefunctionhasaconcaveform(e.g.,
Inderfurth,1993GravesandWillems,2008NealeandWillems,2009).However,they
cannotbeusedwhenthemodelincludesparameterssuchasfixedcostsassociatedwith
holdinginventory,nonnestedreviewperiodsorstochasticleadtimes(Humairetal.,
2013).HumairandWillems(2006)considerarbitrarycostfunctionsforwhichthereare
nostructurallimitations,suchasconcavityormonotonicity.Theyfocusonnetworkswith
CoCandpresentanexactsolutionapproachbasedondynamicprogramming.Similarly,
HumairandWillems(2011)considerarbitrarycostfunctionsforageneralacyclicnetwork
problem.Theyprovideanexactsolutionapproachbycombiningthedynamic
programmingalgorithmdevelopedbyGravesandWillems(2000)withabranchand
boundscheme.Moreover,theypresenttwosignificantlyfastandnearoptimalheuristics.
Oneheuristicismotivatedbythestructureoftheformulationsdualspace,whereasthe
otherheuristicsimplyterminatestheoptimizationalgorithmafterafixednumberof
iterations.NumericalanalysisperformedontherealworldinstancesofWillems(2008)
(from8to2025stageproblems)showsthattheirbranchandboundapproachfinds
optimalsolutionswithinapproximatelytwominutesformostofthetestproblems.
However,forsometestproblems,thecomputationaltimebecomesverylong(upto
severaldaysofcomputation).Thismotivatestheuseoftheirheuristics.Thefirstheuristic
representsanaverageoptimalitygapofapproximately1.1%andanaverageruntimeof
88s,whereasthesecondheuristichasanaverageoptimalitygapof2.8%andan
averageruntimeof5.9s.
Wenoticethatsolutionmethodsforgeneralacyclicnetworkshavebeenwidelystudiedin
theliterature.However,acompleteperformanceevaluationforthesemethodshasnot
yetbeenprovided.Moreover,generalcyclicnetworkshaveattractedmuchlessattention
intheliterature.
6.Literatureconcerningindustrialapplications
Inthissection,wefocusonpapersthatapplytheGSMapproachtorealindustrial
settings.Wedistinguishtwotypesofpapers(cf.column4inTable3).Thefirstcategoryof
papers(TypeIpapers)addressesthepracticalapplicationofaGSMextensionina
specificcompany.Amongtheexamplesofcompaniesforwhichsuccessfulapplications
arerealized,onecanciteEastmanKodak,HewlettPackard(HP),IntelandProcter&
Gamble(P&G).Asecondcategoryofpapers(TypeIIpapers)solvesanintegratedGSM
inwhichthemultiecheloninventoryoptimizationproblemisjointlyconsideredwith
anothersupplychaindecision,suchasthesupplychainconfiguration,dualsourcing,
productionplanning,orcarbonemissionscontrol.
Table3.
Classificationaccordingtoindustrialapplications,whereTypeIpapersaretheapplicationsoftheGSM
extensionsandTypeIIpaperscorrespondtotheapplicationsincorporatingsupplychainconfiguration,
dualsourcing,productionplanning,andcarbonemissionscontrolaspects.
Industry Company Reference Papertype Mainresults

Not Moncayo TypeI ImplementationoftheoriginalGSMin
specified Martnezet arealworldapplication.
al.(2014)
Rambauand TypeI Simulationonrealworlddata
Not Schade demonstratingtheperformanceofthe
Automotive specified (2014) SGSM
Hewlett Billingtonet TypeI Totalsupplychaincostreductionof
Packard al.(2004) over$130millionwhilemaintaining
highservicelevels
Gravesand TypeII $2.2millionsavingscomparedtothe
Not Willems (Supplychain solutionobtainedbythecurrentpolicy
specified (2005) configuration)
Liand TypeII SameapplicationwithGravesand
Womer (Supplychain Willems(2005),managerialinsightson
(2008) configuration) understandingthebenefitofincreasing
Not resourcecapacityandsystem
specified reliability
Nealeand TypeI 1820%increaseininventoryturns,6
Computer Willems 7%increaseinfillrates
Hardware Microsoft (2009)
Procter& Farasynet TypeI 7%inventoryreductiononaveragefor
Gamble al.(2011) 30%oftheirbusiness
Humairetal. TypeI Simplifiedassumptionsunder
(2013) stochasticleadtimesmay
Consumer Not overestimate(2.4%)orunderestimate
Goods specified (3.2%)thetotalinventoryrequired
Eastman Gravesand TypeI Totalinventorycostreductionofover
Kodak Willems 33.3%whileincreasingservicelevels
DigitalImaging (2000)
Theradyne Schoenmeyr TypeI 25%decreaseinthetotalsafetystock
ElectronicTest andGraves costbyincorporatingforecastinginto
Equipment (2009) theGSM
Celanese Bossertand TypeI 30%decreaseininventorylevels
Willems comparedtoasimplemodeling
(2007) approachincaseofstagedependent
reviewperiods
Youand TypeII Illustrativeexamplestoshowthetrade
Not Grossmann (Supplychain offresultsunderdifferentcost
specified (2008) configuration) parameters
Youand TypeII Casestudiestodemonstratethe
Grossmann (Production performanceoftheproposedexact
Not (2011) planning) solutionmethodintermsof
specified computationaltime
Humairetal. TypeI Simplifiedassumptionsunder
(2013) stochasticleadtimesmay
overestimate(4%)orunderestimate
Not (18%)thetotalinventorycost
specified
Industry Company Reference Papertype Mainresults
NiandShu TypeII Applicationofthemodelsproposedin
(2015) (Carbon arealworldsupplychain,insights
Not emissions regardingthetradeoffbetweenservice
Industrial
specified control) timesandcarbonemissions
Chemicals
Not Klosterhalfen TypeII(Dual 6.13%decreaseinthetotalsafety
Industrial Specified etal.(2014) sourcing) stockcostbyaccuratelyintegrating
Electronics dualsourcingwiththeGSM
Not Gravesand TypeII 0.38%decreaseinthetotalsupply
specified Willems (Supplychain chaincostcomparedtotheinitial
(2003) configuration) solution
Nealeand TypeI Morethan20%decreaseininventory
CaseNew Willems levels
Holland (2009)
Funaki TypeII Examplestoillustratethesignificance
(2012) (Supplychain oftheproposedmodelforpractical
Not configuration) situationsandtheeffectivenessofthe
Machinery specified proposedsolutionapproach
Cifunsa Moncayo TypeII 20%and10%decreasesinthetotal
Metal Martnezand (Supplychain inventoryandthecostofgoodssold,
Mechanics Zhang(2013) configuration) respectively
Not Tianetal. TypeII Illustrationoftheproposedoptimization
specified (2011) (Production approachanditsapplicability
Planning)
Wielandet TypeI 11%decreaseininventorylevelswhile
al.(2012) providingservicelevelsexceeding
Semiconductor Intel 90%
Tableoptions
Amongexamplesofpapersthatbelongtothefirstcategory(TypeIpapers),Billingtonet
al.(2004)showthatthesavingsrealizedusingtheGSMapproachforHPsDigital
CameraandInkjetSuppliesbusinessexceed$130million.Farasynetal.(2011)also
reportthatmultiechelonmodelsbasedontheGSMapproachnowdrive30%ofP&Gs
businessandhaveproducedanaverageinventoryreductionof7%.Wielandetal.(2012)
describeamultiecheloninventoryoptimizationprojectatIntelandindicatethatafterits
implementation,thetotalinventorylevelsdecreasedmorethan11%,providingaverage
servicelevelsexceeding90%.
Inthesecondcategoryofpapers(TypeIIpapers),afirstexampleofdecisionsthatare
jointlystudiedwiththeinventoryoptimizationproblemmodeledunderaGSMapproachis
thesupplychainconfigurationproblem.Moreprecisely,thisproblemconsistsof
determining,foragivenstage,whichoptiontoselectamongdifferentalternatives(e.g.,
whichsuppliertochoose,whichtransportationmodestouse,etc.),whereeach
alternativediffersincostandleadtime,whichinturnimpactsafetystockrelated
decisions.GravesandWillems(2003)areamongthefirsttointegratetheGSMapproach
intothesupplychainconfigurationproblem.Hence,theproposedmodelaimsto
determinethebestoptionstoselectaswellastherelatedsafetystockplacementsinthe
supplychainsimultaneously.Theglobalcostformulationconsideredincludessafety
stock,pipelinestock,andprocessingcosts.Theyshowonarealbulldozersupplychain
thatbyreconfiguringthesupplychain,alowertotalsupplychaincostmaybeachieved
relativetotheoriginalGSMsolutionwithpredefinedstandardoptions.Gravesand
Willems(2005)presentadynamicprogrammingalgorithmtosolvethisproblemfor
spanningtreenetworks.Theyapplythismodeltoanotebookcomputersupplychainand
showthatbyoptimizingthesupplychainconfiguration,thecompanymaysavemore
than$2.2millioncomparedtothecurrentpolicy.LiandWomer(2008)alsoconsidera
similarproblem,assumingthateachoptionmayalsobedifferentiatedbythelevelof
qualityprovidedandresourcecapacitiesconsumed.Hence,theyaddtothemodel
constraintsacertainqualitylevelthresholdthathastobemaintainedfortheentiresupply
chainandresourcecapacitiesregardingmaterials,budgets,machines,vehicles,
personnel,etc.Theymodeltheproblemasaprojectschedulingproblemconsideringthe
objectivefunctionofminimizingthecycletimeofanewfinalproduct,i.e.,thetime
requiredtomanufactureanddistributethenewproducttocustomers.Theyproposea
constraintprogrammingbasedsolutionapproachtosolvetheproblemforgeneral
networks.YouandGrossmann,2008andYouandGrossmann,2010consideratri
echelondistributionnetworkandaddtothemodelofGravesandWillems(2005)fixed
installationcostsforcertainstages(calleddistributioncenters).Theydevelop
decompositionalgorithmsthatobtainoptimalornearoptimalsolutions.Youand
Grossmann(2008)presentillustrativeexamplesintheindustrialchemicalsindustryto
showthetradeoffsinthisproblembyconsideringdifferentparametersfortransportation
andinventorycosts.Funaki(2012)extendstheworkofGravesandWillems(2005)to
considernonstationarydemandandtoincludetheduedaterequirementsofcustomers.
Theyprovideanapproximateoptimizationapproachtosolvethisproblemand
demonstrateitseffectivenessforrealworldexamples.Forasimilarproblem,Nepaletal.
(2011)provideamultiobjectiveoptimizationmodelbyconsideringtheminimizationof
thetotalsupplychaincostandthemaximizationofthetotalcompatibilityindexforthe
selectedoptions(i.e.,selectedmembers,firms,partnerswhenconfiguringthesupply
chain).Thecompatibilityindexofdifferentoptionsisasubjectiveparameterinnatureand
isassumedtobedeterminedregardingthestructural,managerial,andfinancialaspects
oftheassociatedmembers.Nepaletal.(2011)formulatethisproblemasaweighted
goalprogrammingmodelandproposeageneticalgorithmtoobtainnearoptimal
solutions.AnothermultiobjectiveoptimizationmodelisprovidedbyMoncayoMartnez
andZhang(2013)tosimultaneouslyminimizethetotalsupplychaincostandthelead
timeofproducts.Theydevelopasolutionmethodbasedonantcolonyoptimizationand
illustratethecomputationalefficiencyoftheiralgorithmusingdifferentprobleminstances.
Theyalsodescribeasuccessfulrealworldapplicationinwhichthetotalinventoryand
thecostofgoodssoldwerereducedby20%and10%,respectively.
Someworksintegrateinventoryoptimizationwithmultisourcingproblemsusingthe
GSMapproach.First,forcompaniesrelyingonexactlytwosupplyoptions,Klosterhalfen
(2010)studiesadualsourcingsetting.Theyassumeanordersplittingpolicyinwhicha
certainfractionofdemandisallocatedtoeachsupplierineveryperiod.Regardingthe
optimizationofsourcingfractions,theirfindingsshowthatchoosingasingleoptionis
oftenreasonablebecausethecostadvantageofdualsourcingisnotverysignificantfor
theproblemsconsidered.However,thereareseveralmotivationsforcompaniestouse
multisourcing,suchasriskmitigation,supplyassurance,andleveragenegotiation.
Recently,Klosterhalfenetal.(2014)haveconsideredadualsourcingsettinginwhich
sourcingfractionsarestaticandexogenouslydetermined.Theydevelopanexact
mathematicalmodelinageneralacyclicsystemstructurethatbuildsontheGSM
approachforsafetystockoptimization.Theyprovethatfornormallydistributeddemand,
anextremepointpropertyholds.Thisenablestheuseofexistingoptimizationalgorithms
fortheoriginalGSM,suchasdynamicprogramming.Theytransformthemodel
presentedbyGravesandWillems(2005)toanapproximatemodeloftheirproblem.This
approximatemodelcannotcaptureinventorypoolinginthewaythattheexactmodel
does.Forarealworldexample,theexactmodelresultsina6.13%totalcostsaving
comparedwiththeapproximatemodel.Thisrealworldexampleformsthebasisof
generatingasetoftestproblemsforwhichthetotalcostsavingsare9.1%onaverage.
AnotherproblemanalyzedsimultaneouslywithaGSMbasedmultiecheloninventory
optimizationproblemistheproductionplanningproblem.First,Tianetal.(2011)propose
aniterativeapproachtojointlysolvetheproblemofallocatingproductioncapacityand
determiningsafetystocklevelsatdifferentstages.Theyprovetheapplicabilityoftheir
solutionmethodforindustrialscaleproblemsusingrealworldexamplesinthe
semiconductorindustry.Second,YouandGrossmann(2011)proposeanother
formulationforasimilarprobleminthechemicalprocessindustry.Thismodel
simultaneouslydeterminestheoptimalpurchaseamountofeachrawmaterial,the
productionlevelsineachprocess,thesaleamountofeachfinalproduct,theinternal
demandofeachproductionprocess,andthesafetystocklevelofeachchemical.They
formulatethemodelasamixedintegernonlinearprogramwithanonconvexobjective
functionandnonconvexconstraints.Tosolvetheirmodelforlargeandcomplexsupply
chainsefficiently,theyexploitsomemodelpropertiesanddevelopanexactsolution
method,namely,atailoredbranchandrefinealgorithmbasedonsuccessivepiecewise
linearapproximation.
NiandShu(2015)incorporatecarbonemissionconcernsintotheGSM,byassuming
thatcarbonemissionsateachstageofasupplychainareafunctionoftheguaranteed
servicetime.Theyformulatetwoinventoryplacementmodelswithcarboncapand
carbontaxconsiderations,respectively.Theyimplementthemodelsusingarealworld
supplychainpresentedinWillems(2008).Bothmodelsaresolvedusingiterative
piecewiselinearapproximations.Basedonthenumericalexperiment,theyshowthatthe
carbonemissionscanbesignificantlyreducedwithoutmuchincreaseinthesafetystock
investmentbysettingapropercarboncaporacarbonemissioncostrate.
ThepaperspresentedinthissectionshowthatthedeploymentoftheGSMapproachin
industrycanyieldgreatbenefits(seealsoTable3).AccordingtoSimchiLeviandZhao
(2012),thesebenefitscanbeattributedtothreefactors:(1)theavailabilityofdata
concerningdemandandleadtimes,(2)motivationsinindustrytousescientificmethods
forinventorymanagementand(3)recentdevelopmentsinmodelingandalgorithmsfor
thecontrolofgeneralnetworkstructures.ThebenchmarkreportofAberdeenGroup
(2007)alsoconfirmsthemotivationofcompaniestousemultiecheloninventory
optimizationtools.Accordingtothisreport,in2007,the210respondentcompanies
rankedinventoryoptimizationasthemostimportantinvestmentarea,withthemulti
echeloninventoryoptimizationtopicbeingthetoppriority.In2012,theestimatedbenefit
fromtheimplementationofmultiecheloninventoryoptimizationtoolsispresentedasa
3.1%servicelevelimprovementanda15%decreaseinthecycletoconvertresource
inputsintocash(AberdeenGroup,2012).Theresultsthatwepresentinthissection
confirmthisestimation.
7.Conclusionandsuggestionsforfutureresearch
Inthispaper,weconductedacomprehensivereviewoftheliteratureconcerningGSM,
whichhasattractedincreasinginterestinthelastdecade.First,wepresentedmodels
thatextendtheoriginalmodelbyrelaxingsomesimplifyingassumptions.Second,we
reviewedsolutiontechniquesthathaveevolvedtobeapplicableforcomplexandlarge
networkstructures.Finally,wepresentedindustrialapplicationsoftheGSMaswellas
thebenefitstheyhaveyielded.However,someunsolvedissuesregardingtheGSM
approachremainforfutureconsideration.
WenoticethatalmostallmodelsintheGSMliteratureusetheCSLservicemeasureto
specifydemandbounds.Moreover,theyusuallyproposetoapplythesametarget
servicelevelforallstagesofthesupplychainwithoutexplicitlyjustifyingthischoice.
Nevertheless,thechoiceoftheservicemeasuretouseandthespecificationofthetarget
servicelevelvalueatdifferentstagesareimportantdecisionsfromapracticalpointof
view.Severalfactors,suchasmarketcompetition,customerpreferencesorbehaviorin
stockoutsituations,andtheuseofextraordinarymeasuresatinternal/externalstages
mayinfluencetherelevantdecisions.Onecanprovideamethodtospecifythetarget
servicelevelsatinternal/externalstagesconsideringthesefactors.Moreover,the
considerationofothertypesofservicemeasurescommonlyusedinpractice(e.g.,fill
ratebasedmeasures)alsoseemsworthwhilewhensettingtargetservicelevels.
TheGSMapproachalsoseemsrelevantindecentralizedsupplychains,wheredifferent
partsofthesupplychainarecontrolledbydifferentdecisionmakers,whomayhave
competinginterests.Toourknowledge,thealignmentofdecisionmakersconflicting
goalsinsuchdecentralizedGSMsettingsisstudiedinalimitednumberofexisting
papers.Simplerulesandcontractstructuresareproposedforsystemsthatarecontrolled
bytwo(seeSchoenmeyr,2008)ormorethantwo(seeEgri,2012)decisionmakers.In
thesesystems,servicelevelsareconsideredasexogenouslyspecifiedinput
parameters.Howtospecifytheservicelevelagreementsbetweendifferentactors
remainsanopenquestion.
ExistingGSMextensionsonlytakeintoaccountthecapacityissuesregardingstage
processes.Inpractice,capacityconstraintscanalsolimitthequantityofitemsthatcanbe
stockedatdifferentstages.Furthermore,budgetconstraintsarealsoanissueobserved
inrealworldsystems(see,e.g.,Rustenburgetal.,2001).Hence,anotherresearchtopic
worthconsideringistheintegrationofanoverallbudgetconstraintintotheGSMto
maximizecustomerservicelevelsaccordingtosomeservicemeasure.
TheoriginalGSMdoesnotexplicitlymodeltheuseofextraordinarymeasureswhen
externaldemandexceedsthespecifieddemandbounds.Thisrepresentsasubtlepoint
oftheoriginalGSM.Inpractice,acombinationofdifferentmeasures(suchasovertime
production,expressdelivery,andoutsourcing)maybeusedtoaddressdemand
variations,andthecostimpactofsuchmeasuresmaybesignificant.However,the
originalGSMdoesnotmodelallsystemoperations,asitdoesnotconsidertheimpactof
extraordinarymeasuresoncostandstageactivity.Existingpapersprovidefewanalytical
insightsaboutthisissue.Furtherresearchcanbepursuedtomodeltheimpactof
differentmeasuresontotalcostandoninventorydynamicsconsideringdifferentsupply
chainstructures.
Anotherinterestingresearchdirectionconcernstheassumptionofperiodicreviewbase
stockpolicies.Wenotethatbasestockpoliciesarenotnecessarilyoptimalintermsof
costfortheoriginalGSMsetting.Althoughthedeterminationofanoptimalreplenishment
policyminimizingthetotalsupplychaincostischallenging,otherreplenishmentpolicies
thatperformbetterthanperiodicreviewbasestockpolicies(intermsofcost)canbe
developedfollowing,forinstance,theideaproposedbySchoenmeyr(2008).Moreover,
takingintoconsiderationthespecificenvironmentinwhichthestudiedsystemoperates,
otherreplenishmentpoliciesmaybemorerelevant.Forinstance,batchorderingpolicies
areoftenwitnessedinpractice(suchasinthebulkindustry).Stagedependentbatch
orderscanbeeitherintegermultiplesofcommondenominatorsorarbitrary.Undera
periodicreviewsetting,thedemandprocessatupstreamstageschangesconsiderably
comparedtostandardbasestockpolicies,whichmakestherelevantproblemquite
challenging.Moreover,indualsupplysettings,otherdualsourcingpoliciesbesides
ordersplitting(asstudiedbyKlosterhalfenetal.,2014)areworthexploringforpractical
and/oreconomicreasons.Theseincludedynamicordersplitting,constantorder(see,
e.g.,JanssenanddeKok,1999)anddualindexpolicies(see,e.g.,Veeraraghavanand
SchellerWolf,2008).
Inpractice,manycompaniesexperiencenonstationarydemandduetoshortproductlife
cycles,seasonality,salesforceincentives,etc.Underanonstationarydemand
assumption,constantservicetimesmayresultinsuboptimalsolutions,asdemonstrated
byGravesandWillems(2008).Ageneralunderstandingofthecostperformanceof
constantservicetimesolutionshasnotyetbeenprovided.Anextensiontoconsider
dynamicservicetimesmayalsobeworthwhilefordeterminingtheoptimalsolutionfor
systemsfacingnonstationarydemandandquantifyingthesuboptimalityofconstant
servicetimesolutions.However,fromapracticalpointofview,adynamicservicetime
modelmaycauseseveralissuesbecausethesafetystocklocationswillchange
dynamically,renderingthemodelanditsimplementationmorecomplicatedand
increasingthecomputationalrequirements.
Finally,efficientsolutionmethodsforgeneralcyclicmultiechelonsystemshavenotbeen
providedtodatedespitetheneedforsuchmethodsinrealworldapplications,e.g.,inthe
chemicalandpharmaceuticalindustries.Theconsiderationofcyclesinthesupplychain
systemcontributesadditionalcomplexityandrepresentsanotherchallengingfuture
researchdirection.
AppendixA.:DifferencesbetweentheSSMandtheGSMapproaches
ThisappendixdiscussesthedifferencesbetweentheSSMandtheGSMapproachesin
termsofdemandpropagation,materialflow,andtheresultingservicetime
characteristics,byillustratingaserialsystemexample.Figs.A1andA2depictan
echelonserialsystemundertheSSMandtheGSM,respectively.Wenotethatinboth
figuresd n (t) representstheunboundedexternalcustomerdemandintimetandall
stagesoperateunderaperiodicreviewbasestockpolicywithnotimedelayinordering.
Fig.A1.
DemandpropagationandmaterialflowintheSSM.
Figureoptions
DemandpropagationandmaterialflowintheGSM.
Figureoptions
Demandpropagation
IntheSSM,theorderingpolicypassesexternalcustomerdemandd n (t) backupthe
supplychainandallstagesobservesexternalcustomerdemandineachperiod.Without
lossofgenerality,consideringthatj,j+1=1forallj={1,2,...,n1},thefollowingholds:
(A1)
UndertheGSMsetting,iftheexternaldemandiswithintheprespecifieddemand
bounds,demandpropagationisasdescribedfortheSSM.Iftheexternaldemand
exceedstheprespecifieddemandbounds,thevalidityof(A1)dependsonthetypeof
extraordinarymeasurestoberesorted.Wedistinguishtwotypesofextraordinary
measures:(1)extraordinarymeasureswhichspeedupthestageprocess(e.g.,express
delivery,overtime,oracceleratedproduction)(2)extraordinarymeasureswhichusean
externalsource(e.g.,outsourcingorsubcontracting).
Typically,extraordinarymeasuresoftype(1)makeuseofinflowmaterialstocoverthe
excessivedemand.Ifsuchextraordinarymeasuresareavailableateachstage
j {1,2,...,n} ,theoriginalunboundeddemandcanbepropagatedtowardsthe
upstreamofthesupplychainand(A1)remainsvalid(see,e.g.,KlosterhalfenandMinner,
2010Klosterhalfenetal.,2013ChenandLi,2015).
Ifextraordinarymeasuresareavailableateachstagej {1,2,...,n} ,andthe

excessivedemandatstagejwith j >0 isservedbyanextraordinarymeasureoftype
(2),thereisnoneedtoplaceorderstoupstreamstagesfortheexcessivedemand.
Therefore,theorderplacedbystagej(hencethedemandobservedbystagej1)
becomes:
(A2)
Wenotethatthisisequivalentwithtruncatingtheexcessivedemandatstagej.
In(A2),thetruncationisperformedconsideringthedemandboundofstagejsince
extraordinarymeasuresareassumetobeavailableattheupstreamstages{1,2,...,j
1} .Ifthisisnotthecase,demandshouldbetruncatedconsideringthedemandbounds
ofupstreamstagesaswell.Otherwise,upstreamstageswillnotbeabletoprovide
guaranteedservice.Asanextremeexample,iftheonlyextraordinarymeasureavailable
inthesupplychainisthatofthedemandstage,demandshouldbetruncatedatstagen
consideringallthedemandboundsdefinedinthesupplychain.Therefore,thedemand
observedbystagen1 becomes:
(A3)
Inthiscase,thedemandobservedbyupstreamstagescanbedefinedas:
Obviously,demandacceptedtothesystemislowerwhenonehastotruncatedemand
with(A3)insteadof(A2).Eruguzetal.(2013)considerthisexampleandassessthe
serviceleveldeviationduetoresultingtruncations.
Whentheexternalunboundeddemandistruncatedbeforepropagation,thedemand
observedattheupstreamstagesbecomeslowerthantheexternalcustomerdemand.
However,thisaspectisnottakenintoconsiderationintheexistingGSMliteraturewhile
specifyingthedemandbounds.Forsuchaserialsystem,acommonapproachisto
assumethattheaverageobserveddemandataninternalstageisalwaysequaltothe
averageexternalcustomerdemandandtouse(6)whilecomputingthedemandbounds.
Materialflowandservicetimes
MaterialflowconsideredintheSSMandtheGSMapproachesdifferasaresultofthe
assumptionsmade.IntheSSM,whenanorderisplacedforanamountofd n (t) itemsin
periodt,eachstagereactstofulfillthisdemandbydeliveringr j (t) itemstodownstream
stagej+1.Thenumberofitemsdeliveredbystagejattimet,r j (t) ,dependsonitems
availability.Ifsufficientitemsareavailableattheupstreamstage,theyareimmediately
deliveredtothedownstreamstage.Otherwise,thedownstreamstageshouldwaitfor
thoseunavailablematerials(backordering).Hence,theservicetimebetweenstagesalso
variesdependingonitemsavailabilityattheupstreamstages.Thisresultsinstochastic
delaysinthematerialflowandrendersservicetimesstochastic.Exactcharacterization
ofthesedelaysischallenging,especiallyforlargeandcomplexmultiechelonsystems
(GravesandWillems,2003).
IntheGSM,eachstagejpromisesanoutboundguaranteedservicetimeS j toits
downstreamstagesfordemandwithinthedemandbounds.Anyorderplacedbystagej
atthebeginningofperiodtS j 1isdeliveredbystagej1atperiodt.Thus,thisorderis
readyforprocessingatstagej,whichtakesL j periods.Therefore,theentire
replenishmenttimeofstagejlastsS j 1 +L j periods.Inturn,stagejquotesservice
timeS j toitsdownstreamstage,whichmakesthetotaltimethatstagejneedstocover
byinventory j =S j 1 +L j S j .WhenonesetsB j =D j ( j ) forallj,servicetimesare
guaranteed,i.e.,eachstageprovidesperfector100%servicetoitsdownstreamstages
andstockoutsdonotoccurswhilefulfillingdemandwithinthedemandboundsD j ( j ).
IntheGSM,ifthedemandduring j periodsexceedsD j ( j ) ,thematerialflow
correspondingtheexcessdemanddependsonthetypeofextraordinarymeasurestobe
used.Extraordinarymeasuressuchasexpediting,overtime,oracceleratedproduction
makeusofpipelineinventoryandhencecovertheexcessdemandfrominflowmaterials.
ThisoperationreducesthepipelineinventorystockasquantifiedbyKlosterhalfenand
Minner(2010).Incaseofoutsourcing,anadditionalexternalmaterialflowisassumedto
beexistent,feedingthesupplychainfromanoutsideresource.
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The outline for this document is InternationalJournalofProduction

Eachstagej N promisesanoutboundguaranteedservicetimeS j toitsdownstream

B j (tSI j L j )=D j (tSI j L j ,tS j ) (9)

wherezbelongstothesetofnonnegativeintegers .In(19),functionD j ( j +z) can

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Ifextraordinarymeasuresareavailableateachstagej {1,2,...,n} ,andthe

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