Impact of uncertain demand and lead-time reduction on two-echelon supply chain

Sumon Sarkar (), Sunil Tiwari () and B. C. Giri ()
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Sumon Sarkar: Jadavpur University
Sunil Tiwari: National University of Singapore
B. C. Giri: Jadavpur University

Annals of Operations Research, 2022, vol. 315, issue 2, No 52, 2027-2055

Abstract: Abstract This paper develops a continuous-review vendor-buyer supply chain (SC) model wherein the lead-time (taken as replenished) is considered as a factor affected upon by the time stamp required for setup and production followed by transportation. Here, the production time indicates the interaction between the lot-size and lead-time. Assuming the existence of an opportunity with the buyer of reducing the replenishment lead-time. The buyer receives normally distributed stochastic lead-time demands from its customers. Due to the stochastic nature of lead-time demand, shortages may arise at the buyer’s side which is fully backlogged. We presume imperfection production at the vendor’s end, which leads to the generation of a certain ratio/percentage of defective products, which results in additional warranty costs for the vendor. This study intends to uncover the best policy that minimizes the system’s total expected cost. A solution algorithm with some lemmas is provided which helped in finding the optimal solution and to prove the uniqueness of the solutions. Findings demonstrate that a reduction in lead-time can effectively lower safety stock as well as the total cost.

Keywords: Lead-time reduction; Demand uncertainty; Two-echelon supply chain; Safety stock; Investment (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10479-021-04105-0

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