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The Effect Of Lead-Time On The Supply Chain: The Mean Versus The Variance

Author

Listed:
  • 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)

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.

Suggested Citation

  • Xin James He & Xiaobo Xu & Jack C. Hayya, 2011. "The Effect Of Lead-Time On The Supply Chain: The Mean Versus The Variance," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 175-185.
    • Handle: RePEc:wsi:ijitdm:v:10:y:2011:i:01:n:s0219622011004270
    DOI: 10.1142/S0219622011004270
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    Cited by:

    1. Luminiţa Nicolescu & Cristina Galalae & Alexandru Voicu, 2013. "Solving a Supply Chain Management Problem to Near Optimality Using Ant Colony Optimization, in an International Context," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 15(33), pages 8-26, February.

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