Research paper

Determining a cost-effective customer

service level
Mariah M. Jeffery
SCM Operations Analytics, IBM Global Business Services, Fairfax, Virginia, USA
Renee J. Butler
Department of Industrial Engineering Technology, Southern Polytechnic State University, Marietta, Georgia, USA, and
Linda C. Malone
Department of Industrial Engineering and Management Systems, University of Central Florida, Orlando, Florida, USA

Abstract
Purpose – The purpose of this paper is to provide an approach for determining inventory levels that result in a minimum cost customer service level for
specific products based on their demand characteristics and profit margin.
Design/methodology/approach – The paper uses logistic regression to quantify the relationship between customer service level and inventory
on-hand in relation to forecasted demand, as well to estimate the impact of factors such as forecast accuracy, customer lead-times, and
demand variability on this relationship. It then performs financial analysis in order to associate a cost with customer service level.
Findings – Empirical results based on data from a semiconductor manufacturer indicate significant cost-savings can be achieved by applying the
proposed method over the organization’s current ad hoc practices.
Research limitations/implications – The minimum cost customer service level identified via the methodology is based on values of dynamic factors
that are specific to the time when data were collected. Therefore, frequent updating is necessary to ensure the customer service level remains close to
the minimum cost. Future research could identify the ideal frequency for updating inventory levels based on cost minimization and production stability.
Originality/value – This research presents an inventory management methodology for organizations with variable, non-stationary demand. In
contrast to much of the current inventory modeling literature, in which service level goals are selected in an ad hoc or a priori manner, this research
determines an ideal (minimum cost) customer service level from the supplier’s perspective based on products’ unique characteristics.

Keywords Customer services quality, Customer service management, Inventory management, Cost effectiveness, Electronics industry

Paper type Research paper

Introduction
Supply chain management offers great potential for
organizations to reduce costs and improve customer service
performance. In today’s competitive market, companies are
pressured to achieve high customer service levels with fewer
resources (i.e. inventory, expedited shipments, and overtime).
Additional pressures of increased product variety, shorter
product life cycles, and shorter desired delivery times have
made it increasingly difficult to achieve high service levels
with limited resources.
The customer service level (percent of orders which
customers receive on time) an organization provides to its
customers is one of the most important factors of an
organization’s success. However, management is typically
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unclear as to the ideal customer service level to strive for and
the amount of inventory required in order to achieve it. In
practice, service level and inventory goals are often set based
on experience, without using a scientific approach. According
to Ettl et al. (2000, p. 216):
[. . .] a common problem for asset managers is not knowing how to quantify
the trade-off between service levels and the investment in inventory required
to support those service levels.
Lee and Billington (1993, p. 2), in a paper about material
management in decentralized supply chains, identify the
evaluation of the tradeoff between inventory investments and
customer service levels as an area needing future research:
To properly assess a supply chain in terms of its inventory investment, one
needs to determine the optimal level of inventory needed to support a service
target, given the nature of the supply chain, and then compare it with the
level in the chain. This assessment can only be possible with a model that can
relate inventory investments throughout a supply chain with its customer
service performance, given the unique characteristics and environment of
that supply chain.

Additionally, dynamic factors such as forecast accuracy,

Supply Chain Management: An International Journal
13/3 (2008) 225– 232
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540810871262]
demand variability, and order lead-time compound the
uncertainty surrounding the inventory and service level
relationship. Because of the non-stationary nature of these

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Mariah M. Jeffery, Renee J. Butler and Linda C. Malone
factors and demand, the ideal inventory and customer service
levels will change with time. Therefore, it is important for
organizations to understand the impact of these factors in
order to react to changes effectively as well as to understand
where to focus efforts to improve delivery performance.
The primary goal of this paper is to provide a process for
addressing the following questions:
.
For a given product, what is the customer service level
that will maximize profit (minimize cost), and how much
inventory should be held in order to achieve it?
.
What is the impact of forecast accuracy, demand
variability, and order lead-time on the relationship
between inventory and customer service level, and what
is the appropriate reaction to changes in these factors?
The balance of this paper is organized as follows. The next
section provides a brief background on supply chain
management and inventory modeling. The following section
describes the approach for identifying the relationship
between inventory, customer service level, and cost in an
empirical study. We present results in the penultimate section,
and the final section contains our concluding remarks.
Supply chain management and inventory
modeling background
There is a great deal of literature on multi-echelon supply
chain inventory models. However, many inventory models are
not well suited for some of today’s complex supply networks.
In much of the literature, demand is considered to be
stationary (Graves and Willems, 2000; Cachon and Zipkin,
1999; Monahan, 1984), while many products experience non-
stationary demand. Addressing non-stationary demand is one
of the most important extensions to this research.
Another area we address is determining the appropriate
service level goal based on product characteristics, while in
much of the inventory modeling literature, service level goals
are selected arbitrarily. Some models have an objective to
minimize costs (or inventory) in the supply chain, subject to
service level constraints (Towill and Del Vecchio, 1994; Liu
et al., 2004; Inderfurth and Minner, 1998), while others
maximize service level with cost or inventory constraints
(Lagodimos, 1992; De Kok and Verrijdt, 1995). A third
approach is to reflect the relative importance of cost and
customer service level with weights chosen by a decision-
maker (Sabri and Beamon, 2000). The problem with these
models is that the constraints or weights are determined a
priori. Even with using sensitivity analysis on these
parameters, it is difficult to achieve the optimal service level
with these approaches.
Gupta and Maranas (2003) capture the trade-off between
customer service level and cost using stochastic programming.
The range of inventory and service levels resulting in the
minimum cost is found by employing a Monte Carlo sampling
method with hundreds of scenarios of randomly generated
demand. While our objective is the same, our approach uses
regression modeling of historical rather than simulated data to
explore the relationships between inventory and factors in the
supply chain, a novel approach in inventory models.
Our methodology is closely related to that of Dubelaar et al.
(2001), who develop a regression model using retail data in
order to explore the relationships among inventory levels,
service (availability) and sales. Inventory is the response
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variable with product variety, competition and demand
uncertainty as independent factors. In contrast to our
research, where demand is independent of availability,
availability of inventory in retail is the primary determinant
of demand. Our work is also similar to Keizers et al. (2003),
where logistic regression is used to identify factors that affect
delivery performance in a job shop environment. The authors
develop a tool for supporting planners in making decisions,
and identify characteristics of orders and processes that may
be insufficiently considered when scheduling production. A
major difference between these two regression-based
approaches and ours is that neither of these prior works
evaluates the tradeoff between inventory and cost.
In summary, much of the traditional inventory modeling
literature makes simplifying assumptions that are invalid in
complex environments such as the semiconductor industry,
where demand is variable and non-stationary. Further, service
level goals used in the literature often may not result in the
ideal tradeoff between inventory and customer service
performance. In the next section, we present an approach
for determining a cost-effective customer service level for
specific products based on their unique characteristics and
customer requirements, and for identifying the inventory
required to achieve this service level under changing
conditions. While our method is developed and applied
using data from the semiconductor industry, our goal is to
provide a framework that can be applied by supply chain
practitioners in a multitude of disciplines to establish cost
effective customer service and inventory levels for their
unique products by following the methodology outlined in
this article.
Process for determining a cost-effective customer
service level
The fundamental question in this research is to understand the
relationship among customer service level, inventory, and
additional factors: order lead-time, variability of demand, and
forecast accuracy. To accomplish this, logistic regression is
employed using delivery performance of orders as the
quantitative response variable in order to analyze the impact of
these variables on supply chain performance. Additionally, to
further understand the financial impact of these factors, a
corresponding cost equation is developed. These two steps are
used to determine the cost effect service level and the
corresponding inventory level. The steps are shown in Figure 1.
In the remainder of this section, we discuss the details of the
developing the logistic regression model, the service level cost
equation, and finally determining the cost-effective customer
service level and corresponding inventory level.
Case study
Intel Corporation, a large semiconductor manufacturer, is
used for the case study. Two similar product families
consisting of a total of 18 products are selected for the
study. Each product group is produced at a volume of
approximately 10 million units per year and only products in
the mature stage of their product life cycles are studied.
Challenges associated with inventory management for these
products include highly variable demand, short lead-times
requested by customers coupled with long production lead-
times, high inventory holding costs, and inaccurate demand
forecasting.
 Determining a cost-effective customer service level
Mariah M. Jeffery, Renee J. Butler and Linda C. Malone
Figure 1 Process for establishing a cost-effective inventory and customer service level
Logistic regression modeling
Regression analysis provides a means to determine the
relationship between our dependent variable, delivery
performance, and the independent variables under
consideration. Unlike ordinary least squares regression,
logistic regression allows one to model a binary dependent
variable, in our case delivery performance of orders (Keizers
et al. 2003).
We collected over 5,000 data points for each of the two
product groups for our logistic regression models, with each
data point representing one order. Data were collected over a
time period of one year, and includes order-specific data such
as order lead-time and on-time delivery performance as well
as data related to conditions at the time of order delivery
including inventory storage levels, forecast accuracy, and
variability of demand.
Using these data, we develop two classes of logistic models,
“planning” and “insight”. The purpose of the planning
models is to quantify the historical relationship between
inventory and delivery performance to be used in future
model development. We develop these models for each of the
18 products as well as an aggregate model for each product
group. The insight models are developed for each product
group as opposed to each individual product because the
purpose of these models is to understand the effects of the
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other factors considered on the relationship between
inventory and delivery performance.
The response for both model classes is a binary variable
indicating whether each order was late or not late (on time or
early), which takes the value of 1 if order i is late and 0
otherwise. The resulting logistic model indicates the
approximate probability of a late delivery under specific
inventory levels and, in the case of the insight models,
demand characteristics.
Inventory is used as an independent variable in both
model classes. However, the inventory level is typically
correlated with the demand forecast, which can be seen
from both the Economic Order Quantity formula and the
common industry practice of setting the inventory target to
a specified number of weeks of anticipated demand.
Therefore, instead of using the inventory level directly, the
inventory levels are scaled by the forecasted demand,
creating the independent variable, “weeks of inventory,”
(WOI). WOI can be defined as follows:
Inventory on hand
WOI ¼ :
ðDemand forecast for next 13 weeks=13Þ
Ultimately, the goal of the planning model development and
subsequent cost analysis is to determine the target value of
 Determining a cost-effective customer service level Supply Chain Management: An International Journal
Mariah M. Jeffery, Renee J. Butler and Linda C. Malone Volume 13 · Number 3 · 2008 · 225 –232

WOI that results in an ideal service level for each product
individually.
Model fitting is done according to the maximum likelihood
method. For more details on this procedure, the reader is
referred to Hosmer and Lemeshow (2000). After determining
the relationship between inventory and customer service level
for each product, we examine the impact of order lead-time,
forecast error, and demand variability (measured by the
coefficient of variation of monthly demand) on this
relationship by creating three insight models for each
product. Our original intent was to develop a single model
containing each of these factors so their interactions could be
studied. However, a high degree of multicollinearity among
the variables (i.e., when demand variability decreases or order
lead-time increases, forecast error typically decreases)
indicated by the variance inflation factors meant that the
effect of individual variables could not be reliably discerned
from the resulting model. Therefore, three insight models are
created including WOI and one of the additional independent
variables to examine each factor individually. The variables
for each product group n included in the two model classes
are shown in Table I.
We apply a logarithmic transformation to each of these
three variables to improve model fit.
Assessing the models’ goodness of fit is not straightforward
because logistic regression lacks a universally accepted model
diagnostic (Hagle and Mitchell, 1992). We first assess model
fit by ensuring that each of the eight models passes the
Hosmer and Lemeshow goodness of model fit test at the 0.05
significance level, indicating that the model’s estimates fit the
data acceptably (Hosmer and Lemeshow, 2000). Additionally,
we compare the max-rescaled R-square value (similar to R-
square in ordinary least squares regression) against a
validation dataset. The regression equations for both
product groups with their validation max-rescaled R-square
values, which we consider to be sufficiently close to the initial
scores to proceed, follow in Table II.
One must recall that the equations shown in the table
represent non-linear relationships where the response
variable, Yn, represents a logit (the natural log of the odds
ratio) of p, the probability of a late delivery. The formula for
the logit is as follows:
 
p
logitð pÞ ¼ log :
12p
Using simple algebra and logarithm manipulation, one can
solve for the customer service level for the period of interest.
We plot the resulting models for one of the product groups
to visually show these relationships in Figures 2-4, holding
customer service level at a constant 90 percent while varying
the two independent variables. For the second product group,
the graphs are similar and therefore, are not shown.
The insight analysis is an important aspect of determining
an inventory and customer service level goal for two reasons.
Since it identifies the effects of factors that have a significant
impact on an organization’s customer service level, the
appropriate reaction to changes in these factors can be
Figure 2 Effect of order lead-time on inventory/service level
relationship

Table I Variable coding scheme and descriptive statistics

Code Variable Formula Avg value Max. value Min. value s
Xn1 Weeks of inventory (WOI) (weeks) Inventory on hand/(Demand for forecast for next 13 weeks/13) 4.2 13.2 0 1.8
Xn2 Forecast errora (%) abs(Forecasted demand 2 Actual demand/Actual demand) 28 372 0 23
Xn3 Order lead time (days) Requested delivery date 2 Order placed date 24 272 0 19
Xn4 Coefficient of variation of demandb s of demand for Product i/m of demand for Product i 0.48 0.93 0.34 0.17
Notes: a Forecast error is measured one month in advance of order fulfillment; b Coefficient of variation of demand is measured over the previous three-month
period

Table II Regression equations and validation results

Product group Model Max-rescaled R-square Validation MR R-square
1 Y1 ¼ 0:8068*X11 0.544 0.492
1 Y1 ¼ 0:389*X11 2 1:195*logðX12 Þ 0.571 0.527
1 Y1 ¼ 0:021*X11 þ 0:057*logðX13 Þ 0.645 0.603
1 Y1 ¼ 0:288*X11 2 1:638*logðX14 Þ 0.583 0.551
2 Y2 ¼ 0:6705*X21 0.512 0.477
2 Y2 ¼ 0:639*X21 þ 1:053*logðX22 Þ 0.548 0.522
2 Y2 ¼ 0:028*X21 þ 0:279*logðX23 Þ 0.688 0.602
2 Y2 ¼ 0:274*X21 2 1:815*logðX24 Þ 0.653 0.607

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Mariah M. Jeffery, Renee J. Butler and Linda C. Malone Volume 13 · Number 3 · 2008 · 225 –232

Figure 3 Effect of demand variability on inventory/service level about the mean. The table shows that of the three insight
relationship variables, X3 (order lead-time) has the most significant effect
on customer service level based on its distribution.
The insight analysis can be applied to product families or
individual products. Grouping of products is often done for
analysis purposes if the costs and other characteristics are
similar (Gupta and Maranas, 2003). The time required to
perform the analysis must be weighed against the expected
cost savings resulting from individual products’ inventory
targets. We find that in general, unless a product is produced
in low volume and demand is predictable, individual
inventory targets are justified.

Service level cost analysis

Figure 4 Effect of forecast error on inventory/service level relationship
After developing equations relating inventory and customer
service level, we develop a cost equation in order to quantify
the cost of providing a given service level. This equation
includes both inventory holding costs and the cost of lost
orders when a stock-out occurs. Therefore, the cost of
achieving a given customer service level for a single period,
C(SL), can be expressed as:

CðSLÞ ¼ Inventory units=period*Inventory Holding Cost=unit

þ Expected Lost Sales units=period*Profit Margin=unit: ð1Þ

The cost of holding inventory is composed of warehousing

costs, product obsolescence (the decrease in the value of
products from the time they are manufactured until sold), the
opportunity cost of investing in inventory, and scrap of
obsolete products. These values, which have been estimated
previously at Intel, range from a total of 20 percent to 40
determined as well. This is necessary because the relationship percent of the total variable production costs by product.
between inventory and customer service level identified via The cost of lost orders is based on a study of customer
the planning models is based on specific values of these surveys in the semiconductor industry by Sonnet (2004).
dynamic factors found in the historical data. This analysis can When asked to indicate their likelihood to wait for products if
also assist organizations with evaluating the cost versus benefit a stock-out occurs, customers indicate they will purchase an
of potential improvement efforts. For example, the order lead- alternative product from the same company or wait for the
time analysis can be used to determine the additional desired product approximately 80 percent of the time, while
inventory required to quote shorter order lead times to they buy from the competition the remaining 20 percent of
customers, or conversely, appropriate price incentives to offer the time.
customers for purchasing further in advance. Below we develop the cost equation for a given customer
Table III shows the customer service level at three levels of service level. The following notation is used in the cost
the four variables we consider using data for Product Group equation:
2. The three levels represent each variable’s mean and the t ¼ period index;
upper and lower limits of a 50 percent confidence interval i ¼ product index;
SLit ¼ service level (percent of orders delivered when
requested) for product i in period t;
Table III Sensitivity analysis on variables WOIit ¼ units of inventory of product i held during period t
divided by weekly forecasted demand;
Service level Service level Service level
Fit ¼ average weekly forecast for product i during period t
X1 X2 (%) X3 (%) X4 (%)
(units);
2.8 0.17 88.17 7 74.45 0.34 82.83 Dit ¼ average weekly demand for product i during period
2.8 0.23 86.44 24 79.81 0.48 79.06 t (units);
2.8 0.65 78.80 47 82.36 0.69 74.47 Pi ¼ variable production cost for product i;
4.2 0.17 92.78 7 79.64 0.34 87.84 Ri ¼ revenue for one unit of product i; and
4.2 0.23 91.66 24 84.14 0.48 84.96 Hit ¼ inventory holding cost as a percent of variable
4.2 0.65 86.50 47 86.24 0.69 81.36 production cost for product i in period t.
6.3 0.17 96.68 7 85.87 0.34 92.97 The inventory holding costs for a given product and a single
6.3 0.23 96.13 24 89.18 0.48 91.19 period, IHCit, can be expressed as:
6.3 0.65 93.55 47 90.69 0.69 88.88
IHCit ¼ H it P i avgðWOIit ÞF it : ð2Þ

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 Determining a cost-effective customer service level
Mariah M. Jeffery, Renee J. Butler and Linda C. Malone
By applying Sonnet’s findings and (2) to (1), the cost of
achieving a customer service level for a given product i in
period t, C(SLit), can also be written as:
C ðSLit Þ ¼ H it P i avgðWOIit ÞF it þ 0:2ð1 2 SLit ÞDit ðRi 2 P i Þ:
By approximating the actual demand with the demand
forecast, this equation becomes:
CðSLit Þ ¼ F it ½H i P i avgðWOIit Þ þ 0:2ð1 2 SLit ÞðRi 2 P i Þ
:
Cost-effective customer service level results
After determining equations for customer service level and its
cost, we generate plots of both measures at various levels of
weeks of inventory (WOI) in order to determine the minimum
cost inventory and service level for each of the 18 products we
study. Results for two of these products are shown below in
Figures 5 and 6. Expected values and 95 percent confidence
limits for the customer service level are shown on the primary
y-axis, while the secondary y-axis represents the cost for the
customer service level calculated using (3). The cost axis is
not labeled due to confidentiality.
For the product evaluated in Figure 5, the ideal service level is
93.8 percent, which is achieved by storing 3.6 weeks of
inventory, although a range of 3.2-3.8 weeks of inventory
results in a cost that is within 1 percent of the minimum. Over
this range, incremental increases in inventory holding costs
are approximately offset by decreases in lost sales. For the
product shown in Figure 5, a 95.3 percent service level is
ideal, which is achieved by storing 5.2 weeks of inventory
(with 4.6-5.6 weeks resulting in a cost within 1 percent of the
minimum). A higher service level is ideal for the second
product because the profit margin is higher, resulting in a
higher penalty for lost sales. Additionally, the second
product’s demand is more variable, which causes a lower
customer service level to be achieved when holding the same
amount of inventory. Thus, the two products’ ideal inventory
Figure 5 Relationship between inventory, cost, and customer service level for Product 1
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Volume 13 · Number 3 · 2008 · 225 –232
levels differ considerably with only a slight difference in ideal
service levels.
For the 18 products evaluated, we find that the ideal service
level ranges between 88.1 percent and 99.0 percent, which is
achieved by holding between 3.6 and 6.5 weeks of finished
goods inventory. For each product, a range of 0.4 weeks to 1.2
weeks exists over which the cost is within one percent of the
minimum. Planning to a range of inventory levels rather than
ð3Þ a specific target allows fewer adjustments to production levels
and therefore, less overall supply chain variability. More
research is needed to evaluate the trade-off between
production variability and the cost of inventory and stock-
outs, and potentially determine a cost penalty factor for
changing production levels.
The considerable difference in ideal inventory and service
levels across the 18 products is due to differences in profit
margin, inventory holding costs, and the three dynamic
factors we evaluate. For some products, these results are
drastically different than the current inventory management
practice of holding four weeks of finished inventory for each
product, which typically results in a lower than ideal service
level. Potential cost savings for these 18 products range from
negligible to a 42 percent reduction in total inventory and
stock-out costs. For one particular product with an annual
volume of approximately 2.5 million units, the potential
annual cost reduction exceeds $5 million (a 34 percent
reduction), assuming the calculated inventory level is optimal
for the entire year. Since we have applied hindsight
evaluations (past data) to future planning, the actual cost
savings may differ if changes take place in the three dynamic
factors considered. However, these changes can be
compensated for by adjusting the inventory level according
to the results of the insight analysis. Frequent reassessments
of the ideal inventory level will allow the service level to
remain close to optimal, resulting in significant cost
reductions compared to current practices. The insight
analysis can assist practitioners with determining the
amount of such adjustments. From Figures 2-4 and (1), as
order lead-time decreases, the amount of inventory required
to achieve a given service level (and therefore, the cost of
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 Determining a cost-effective customer service level
Mariah M. Jeffery, Renee J. Butler and Linda C. Malone
Figure 6 Relationship between inventory, cost, and customer service level for Product 2
achieving this service level) decreases. Since inventory holding
costs are weighed against the cost of lost sales to determine an
optimal service level, the optimal service level increases as
order lead-time increases. Similarly, the optimal service level
decreases as forecast error and demand variability increase.
The insight analysis and cost equations can also be used to
determine price incentives to give to customers to minimize
variability or increase order lead-time. The sales department
may choose to offer substantial discounts to customers when
inventory is above the target in order to reduce demand
variability, or give incentives to customers to place orders in
advance at regular intervals, with additional units available at
a higher price. By determining a baseline cost for a customer
service and inventory level from (3), identifying the expected
change to the customer service and inventory level using the
insight equations, and using these values in (3) to determine a
new expected cost, one can determine the value of
improvements to variable factors and therefore, the
appropriate incentives to offer to customers.
Conclusions
In order to maintain a competitive advantage, organizations
must adopt supply chain management practices that satisfy
customers in a cost-effective way. We provide a process that
organizations can use to determine a near optimal (minimum
overall cost) customer service level from the supplier’s
perspective. We present empirical results from the
application of the methodology to a world-class
semiconductor manufacturer, which show a substantial cost-
savings can be achieved over the organization’s current ad hoc
inventory management practices. We feel that our approach
can provide similar benefits in other industries, particularly
where demand is non-stationary. Practitioners in these
industries can follow our proposed methodology to establish
cost effective customer service and inventory levels for their
unique products. However, they may choose to focus on other
important factors than the three we have considered.
Our methodology consists of modeling the relationship
between inventory, customer service level, and other factors
via logistic regression. A cost is associated with inventory and
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stock-outs, which leads to the determination of a minimum cost
customer service level. While it is intuitive that the ideal service
level increases with profit margin and order lead-time and
decreases with inventory holding cost, demand variability, and
forecast error, the effect of these factors is difficult to isolate and
understand. Our proposed methodology quantifies the degree to
which these factors affect the relationship between inventory and
customer service level and incorporates this knowledge into
inventory management strategies. This removes the ambiguity
from the determination of customer service level and inventory
goals. Additionally, the methodology reflects the way many
organizations plan their inventory levels in practice by
considering inventory in relation to the dynamic demand
forecast.
The authors recognize that in the semiconductor industry
and many others, inventory is stored in multiple echelons in
addition to a finished-inventory warehouse. We originally
intended to include semi-finished inventory as an
independent variable in our study. However, our initial
models included multicollinearity between variables and
autocorrelation across time periods. As a result, we decided
to narrow the focus of our study to finished inventory and
customer echelons. The cost savings we have identified for
increasing order lead-time, and/or reducing demand
variability and forecast error are likely underestimated due
to the potential to reduce inventory in other echelons of the
supply chain, which is amplified by the bullwhip effect.
The results of our case study indicate significant differences in
widths of the near-minimum cost inventory range across the 18
products considered. In a subsequent article, we examine
whether more production control is necessary to avoid heavy
stock-out penalties or inventory holding costs for products with a
smaller minimum cost range. We also explore the effect of the
degree of control on inventory and stock-out costs and
production stability in multiple supply chain echelons.
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Corresponding author
Mariah M. Jeffery can be contacted at: mjeffery@us.ibm.com