Leadtime-Inventory Trade-Offs in Assemble-to-Order Systems

Paul Glasserman and Yashan Wang
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Paul Glasserman: Columbia Business School, New York, New York
Yashan Wang: MIT Sloan School, Cambridge, Massachusetts

Operations Research, 1998, vol. 46, issue 6, 858-871

Abstract: This paper studies the trade-off between inventory levels and the delivery leadtime offered to customers in achieving a target level of service. It addresses the question of how much a delivery leadtime can be reduced, per unit increase in inventory, at a fixed fill rate. We show that for a class of assemble-to-order models with stochastic demands and production intervals there is a simple linear trade-off between inventory and delivery leadtime, in a limiting sense, at high fill rates. The limiting slope is easy to calculate and can be interpreted as the approximate marginal rate for trading off inventory against leadtime at a constant level of service. We also investigate how various model features affect the trade-off—in particular, the impact of orders for multiple units of a single item and of orders for multiple units of different items.

Keywords: Production-inventory; assemble-to-order; fill rate; trade-off; exponential tail probability; delivery leadtime (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:46:y:1998:i:6:p:858-871

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