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THE COST OF IGNORING LEAD TIME UNRELIABILITY IN INVENTORY THEORY *
Author(s) -
VINSON CHARLES E.
Publication year - 1972
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1972.tb00538.x
Subject(s) - lead time , stockout , lead (geology) , safety stock , inventory management , inventory theory , inventory cost , carrying cost , total cost , operations research , reorder point , liberian dollar , operations management , economics , computer science , economic order quantity , business , microeconomics , supply chain , mathematics , marketing , finance , geomorphology , geology
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.