A Mathematical Safety Stock Model for DDMRP Inventory Replenishment

Abstract

The inventory replenishment method of the demand-driven materials requirement planning (DDMRP) draws attention from both scholars and practitioners due to its lower average inventory and, simultaneously, lower stockout rate than existing methods. However, the safety stock of DDMRP replenishment uses a subjective guideline, which is different from any existing safety stock formula. The guideline allows the user to subjectively select the parameter values within a certain range, which jeopardizes the consistency of the inventory performance. This paper proposes an alternative safety stock formula for DDMRP replenishment, which is mathematically defined so as to be consistent. Moreover, simulation indicates that the proposed formula outperforms the DDMRP guidelines and existing safety stock formulas in terms of average inventory and stockout rate.