Title

Decision Support for Lead Time and Demand Variability Reduction

Publication Type

Journal Article

Publication Date

4-2013

Abstract

Companies undertaking operations improvement in supply chains face many alternatives. This work seeks to assist practitioners to prioritize improvement actions by developing analytical expressions for the marginal values of three parameters – (i) lead time mean, (ii) lead time variance, and (iii) demand variance – which measure the marginal cost of an incremental change in a parameter. The relative effectiveness of reducing lead time mean versus lead time variance is captured by the ratio of the marginal value of lead time mean to that of lead time variance. We find that this ratio strongly depends on whether the lead time mean and variance are independent or correlated. We illustrate the application of the results with a numerical example from an industrial setting. The insights can help managers determine the optimal investment decision to modify demand and supply characteristics in their supply chain, e.g., by switching suppliers, factory layout, or investing in information systems.

Keywords

Supply chain management, Inventory, Decision analysis, Lead time, Marginal value

Discipline

Business | Operations and Supply Chain Management

Research Areas

Operations Management

Publication

Omega

Volume

41

Issue

2

First Page

390

Last Page

396

ISSN

0305-0483

Identifier

10.1016/j.omega.2012.03.005

Publisher

Elsevier

Additional URL

http://dx.doi.org/10.1016/j.omega.2012.03.005