A study of lead time variation impact on supply chain performance

Abstract

Lead time (LT) is a core parameter that varies and affects all supply chain (SC) partners. LT uncertainty is known as a kind of supply uncertainty in the SC literature which attracts attention of many researchers. In this paper, impact of LT variability in a serially connected supply chain with 4 levels is investigated. The study includes two main stages: development of a structural model and testing the structural relations by using simulated data. Simulation makes it possible to remove effects of intervener variables in order to measure pure impact of LT uncertainty on SC. Regarding this matter, a structural relationship model with three hypotheses about direct and indirect impact of LT uncertainty on supply chain inventories have been developed. To test the proposed structural relations, simulated data were used. The results of the study show that by increasing the lead time variance, order variances increase while no impact on the bullwhip is observed, i.e. the order variances increase uniformly throughout the entire SC. Furthermore, results show that the increase in the lead time variance will lead to inventory fluctuations. One practical recommendation of this study is to apply an investment strategy to reduce the lead time uncertainty.