The impact of stochastic lead time reduction on inventory cost under order crossover

Jack C. Hayya, Terry Paul Harrison, X. James He

Research output: Contribution to journalArticle

42 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)274-281
Number of pages8
JournalEuropean Journal of Operational Research
Volume211
Issue number2
DOIs
StatePublished - Jun 1 2011

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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