Determination of Safety Stock for Power Enterprises Under Uncertainty

It is not easy to entirely avoid the uncertainty of supply problem. To solve the problem relays on setting up some necessary safety stocks. Safety stock is an effective management tool for protecting the enterprises against the uncertainty and it provides customers with the promised service level, but a higher safety stock level does increase the supply chain operating cost. Determination of safety stock plays a crucial role in supply chain management. In this paper, we construct a model for a coal-fired power enterprise in a two-stage supply chain system under the background of uncertainty. We show how the variance in demand during lead time can be estimated and present a model for determination of optimal service level with a marginal analysis method, then set up a model for determination of optimal safety stock. Finally, a numerical example is given to illustrate the application of this model.