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Safety stock reduction by order splitting
Author(s) -
Kelle Péter,
Silver Edward A.
Publication year - 1990
Publication title -
naval research logistics (nrl)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.665
H-Index - 68
eISSN - 1520-6750
pISSN - 0894-069X
DOI - 10.1002/1520-6750(199010)37:5<725::aid-nav3220370511>3.0.co;2-o
Subject(s) - reorder point , stockout , safety stock , lead time , vendor , weibull distribution , order (exchange) , inventory control , stock (firearms) , computer science , economic order quantity , expected value , operations research , mathematics , statistics , mathematical optimization , operations management , economics , business , supply chain , finance , engineering , mechanical engineering , marketing
In this article we consider an item for which a continuous review, reorder point, order quantity inventory control system is used. The amount of safety stock required depends upon, among other factors, the average value and variability of the length of the replenishment lead time. One way to reduce these quantities is to split orders among two or more vendors. In this article the random lead times are assumed to have Weibull distributions. This permits the development of analytic expressions for the reduction in the expected value and variability of total demand until the critical first (earliest) delivery received from a vendor. An expression is also obtained for the reorder point that provides a given probability of no stockout prior to the first delivery. Lower bounds are given on the order quantity so as to ensure that the probability of a stockout before any one of the later (second, third, etc.) deliveries is sufficiently small to be considered negligible. The analytic and tabular results can be used to estimate the benefits (reduced carrying costs and/or increased service level) of order splitting.