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The impact of stochastic lead time reduction on inventory cost under order crossover |
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| Authors: | Jack C Hayya Terry P Harrison X James He |
| Institution: | a Department of Supply Chain and Information Systems, 362 School of Business, Pennsylvania State University, University Park, PA 16802, USA b Department of Supply Chain and Information Systems, 459 Smeal College of Business, Pennsylvania State University, University Park, PA 16802, USA c Department of Information Systems and Operations Management, Dolan School of Business, Fairfield University, Fairfield, CT 06824, USA |
| Abstract: | We use exponential lead times to demonstrate that reducing mean lead time has a secondary reduction of the variance due to order crossover. The net effect is that of reducing the inventory cost, and if the reduction in inventory cost overrides the investment in lead time reduction, then the lead time reduction strategy would be tenable.We define lead time reduction as the process of decreasing lead time at an increased cost. To date, decreasing lead times has been confined to deterministic instances. We examine the case where lead times are exponential, for when lead times are stochastic, deliveries are subject to order crossover, so that we must consider effective lead times rather than the actual lead times. The result is that the variance of these lead times is less than the variance of the original replenishment lead times.Here we present a two-stage procedure for reducing the mean and variance for exponentially distributed lead times. We assume that the lead time is made of one or several components and is the time between when the need of a replenishment order is determined to the time of receipt. |
| Keywords: | Stochastic lead time Lead time reduction Cost effectiveness Inventory optimization Order crossover Simulation |
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