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

Author

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  • Paul Glasserman

    (Columbia Business School, New York, New York)

  • Yashan Wang

    (MIT Sloan School, Cambridge, Massachusetts)

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.

Suggested Citation

  • Paul Glasserman & Yashan Wang, 1998. "Leadtime-Inventory Trade-Offs in Assemble-to-Order Systems," Operations Research, INFORMS, vol. 46(6), pages 858-871, December.
    • Handle: RePEc:inm:oropre:v:46:y:1998:i:6:p:858-871
    DOI: 10.1287/opre.46.6.858
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    2. Paul Glasserman & Yashan Wang, 1999. "Fill-Rate Bottlenecks in Production-Inventory Networks," Manufacturing & Service Operations Management, INFORMS, vol. 1(1), pages 62-76.
    3. L. Jeff Hong & Barry L. Nelson, 2006. "Discrete Optimization via Simulation Using COMPASS," Operations Research, INFORMS, vol. 54(1), pages 115-129, February.
    4. Wenhui Zhou & Xiuli Chao, 2012. "Stein–Chen approximation and error bounds for order fill rates in assemble‐to‐order systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 59(8), pages 643-655, December.
    5. Levi DeValve & Saša Pekeč & Yehua Wei, 2020. "A Primal-Dual Approach to Analyzing ATO Systems," Management Science, INFORMS, vol. 66(11), pages 5389-5407, November.
    6. Yao Zhao & David Simchi-Levi, 2006. "Performance Analysis and Evaluation of Assemble-to-Order Systems with Stochastic Sequential Lead Times," Operations Research, INFORMS, vol. 54(4), pages 706-724, August.
    7. Liu, Liming & Xu, He & Zhu, Stuart X., 2020. "Push verse pull: Inventory-leadtime tradeoff for managing system variability," European Journal of Operational Research, Elsevier, vol. 287(1), pages 119-132.
    8. Erica L. Plambeck & Amy R. Ward, 2006. "Optimal Control of a High-Volume Assemble-to-Order System," Mathematics of Operations Research, INFORMS, vol. 31(3), pages 453-477, August.
    9. Jing-Sheng Song & David D. Yao, 2002. "Performance Analysis and Optimization of Assemble-to-Order Systems with Random Lead Times," Operations Research, INFORMS, vol. 50(5), pages 889-903, October.
    10. Yalçin Akçay & Susan H. Xu, 2004. "Joint Inventory Replenishment and Component Allocation Optimization in an Assemble-to-Order System," Management Science, INFORMS, vol. 50(1), pages 99-116, January.
    11. Ke Fu & Vernon Ning Hsu & Chung-Yee Lee, 2006. "Inventory and Production Decisions for an Assemble-to-Order System with Uncertain Demand and Limited Assembly Capacity," Operations Research, INFORMS, vol. 54(6), pages 1137-1150, December.
    12. Erica L. Plambeck, 2008. "Asymptotically Optimal Control for an Assemble-to-Order System with Capacitated Component Production and Fixed Transport Costs," Operations Research, INFORMS, vol. 56(5), pages 1158-1171, October.
    13. Kang, Jae-Hun & Kim, Yeong-Dae, 2012. "Inventory control in a two-level supply chain with risk pooling effect," International Journal of Production Economics, Elsevier, vol. 135(1), pages 116-124.
    14. Jing-Sheng Song & Susan H. Xu & Bin Liu, 1999. "Order-Fulfillment Performance Measures in an Assemble-to-Order System with Stochastic Leadtimes," Operations Research, INFORMS, vol. 47(1), pages 131-149, February.
    15. Yingdong Lu, 2007. "Estimation of average backorders for an assemble‐to‐order system with random batch demands through extreme statistics," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(1), pages 33-45, February.
    16. Yingdong Lu & Jing-Sheng Song & David D. Yao, 2003. "Order Fill Rate, Leadtime Variability, and Advance Demand Information in an Assemble-to-Order System," Operations Research, INFORMS, vol. 51(2), pages 292-308, April.

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