The value-of-reliability (VOR) reflects the savings in inventory-system costs from more reliable (less variable) lead times. Previous studies have revealed that more reliable, but positively skewed, lead times could actually increase optimal safety inventory when the probability of satisfying all demand during a replenishment cycle drops below 70%. Researchers claim that this paradox affects most firms and that it explains the inconsistent VOR estimates found in the transportation economics literature. Our investigation reveals that firms interested in high product availability may safely ignore the paradox and that less lead-time variability consistently increases VOR, the paradox notwithstanding.
|Original language||English (US)|
|Number of pages||10|
|Journal||Transportation Research Part E: Logistics and Transportation Review|
|State||Published - Oct 2014|
All Science Journal Classification (ASJC) codes
- Business and International Management
- Civil and Structural Engineering