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Recursive Behavior of Safety Stock Reduction: The Effect of Lead‐Time Uncertainty
Author(s) -
Wang Ping,
Hill James A.
Publication year - 2006
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.1540-5915.2006.00125.x
Subject(s) - safety stock , stock (firearms) , lead time , computer science , econometrics , business , operations research , operations management , economics , mathematics , marketing , engineering , mechanical engineering , supply chain
Motivated by a recent paper on the effect of lead‐time variability reduction on safety stocks, we provide evidence of the recursive nature of safety stock changes. When lead times follow a gamma distribution we demonstrate that, for cycle service levels between .60 and .70, the reduction of lead‐time variability will first increase safety stock and then either recursively decrease safety stock or make it remain constant. We also numerically show the existence of the recursive effect. A two‐by‐two matrix is introduced to assist managers in making decisions regarding safety stock policy.