THE COST OF IGNORING LEAD TIME UNRELIABILITY IN INVENTORY THEORY *

THE COST OF IGNORING LEAD TIME UNRELIABILITY IN INVENTORY THEORY * ABSTRACT A computerized cost‐minimization model was used to study the importance of lead time unreliability (variability of lead time from mean lead time) in inventory management. Using different combinations of stockout cost, demand variability, mean lead time, and variability of lead time around the means, changes in optimum safety stock and in inventory costs were observed. Lead time unreliability was found to be of greater importance than either the mean lead time or the variability of demand in explaining inventory cost behavior. Managers and researchers involved in the development of inventory theory are urged to note the great financial damage that may result from ignoring lead time unreliability; a dollar measure of this penalty is included in the presentation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Decision Sciences Wiley

THE COST OF IGNORING LEAD TIME UNRELIABILITY IN INVENTORY THEORY *

Decision Sciences, Volume 3 (2) – Apr 1, 1972

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Publisher
Wiley
Copyright
Copyright © 1972 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0011-7315
eISSN
1540-5915
DOI
10.1111/j.1540-5915.1972.tb00538.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT A computerized cost‐minimization model was used to study the importance of lead time unreliability (variability of lead time from mean lead time) in inventory management. Using different combinations of stockout cost, demand variability, mean lead time, and variability of lead time around the means, changes in optimum safety stock and in inventory costs were observed. Lead time unreliability was found to be of greater importance than either the mean lead time or the variability of demand in explaining inventory cost behavior. Managers and researchers involved in the development of inventory theory are urged to note the great financial damage that may result from ignoring lead time unreliability; a dollar measure of this penalty is included in the presentation.

Journal

Decision SciencesWiley

Published: Apr 1, 1972

References

  • Before the Inductive Leap: Eight Steps to System Simulation
    Sexton, Sexton

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