The lead-time reliability paradox and inconsistent value-of-reliability estimates

John E. Tyworth and John Saldanha

Transportation Research Part E: Logistics and Transportation Review, 2014, vol. 70, issue C, 76-85

Abstract: 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.

Keywords: Lead-time uncertainty; Safety inventory; Freight transport; Value of reliability (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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DOI: 10.1016/j.tre.2014.06.009

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