Abstract
Companies often determine safety stock requirements for each stage of their supply chain network using a siloed approach that overlooks the interdependencies between stages. This fragmented approach results in excess inventory and elevated holding costs. To address this problem, the Guaranteed Service Model (GSM) was selected—following a comprehensive literature review— for its ability to optimize safety stock allocation across an integrated, multi-stage network while minimizing inventory holding costs. The model’s performance was evaluated across nine scenarios with varying holding rates and cost structures, and its robustness was validated through an analysis accounting for demand variability. The results demonstrate safety stock holding cost reductions between 20% and 38%, driven by the mitigation of the bullwhip effect, the pooling effect across products and locations, and the optimal safety stock allocation. The model offers potential for broader industry application and can be adapted and scaled to different products and network configurations. This research provides a solid foundation for transitioning from a single-echelon to a more efficient, integrated multi-echelon inventory management, enabling cost savings that can be reinvested in strategic initiatives to enhance overall supply chain performance.
