THE EFFECT OF LEAD-TIME ON THE SUPPLY CHAIN: THE MEAN VERSUS THE VARIANCE

Xin James He (), Xiaobo Xu () and Jack C. Hayya ()
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Xin James He: Dolan School of Business, Fairfield University, 1073 North Benson Road, Fairfield, CT 06824, USA
Xiaobo Xu: School of Business and Management, American University of Sharjah, Sharjah, United Arab Emirates
Jack C. Hayya: Department of Supply Chain and Information Systems, Pennsylvania State University, University Park, PA 16802, USA

International Journal of Information Technology & Decision Making (IJITDM), 2011, vol. 10, issue 01, 175-185

Abstract: In a study on stochastic inventory systems, Chopraet al. (Decision Sciences35(1) (2004) 1–24) argue that decreasing lead time is the right lever if they want to cut inventories, not reducing lead time variability. According to Chopraet al., reducing the mean lead time, μ, is more important than reducing the lead time variance,σ2, to reduce total inventory cost via a reduced safety stock. This paper is a criticism of Chopraet al., where the optimalzwas derived based upon a predeterminedQ, instead of solving the optimalzandQsimultaneously in a(z, Q)inventory system. We argue that such an approach is inappropriate because the two decision variables,zandQ, are in general interdependent, and, moreover, reducing reorder point (safety stock),z, does not necessarily decrease the total inventory cost. We demonstrate by means of a truncated lead time(z, Q)model that it is lead time variability, not mean lead time, that affects the inventory policy and total supply chain cost.

Keywords: Lead-time variability; stochastic inventory systems; supply chain (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219622011004270

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