Lead time reduction strategies in a single-vendor–single-buyer integrated inventory model with lot size-dependent lead times and stochastic demand

Abstract

This paper studies alternative methods for reducing lead time and their impact on the safety stock and the expected total costs of a (Q,s) continuous review inventory control system. We focus on a single-vendor–single-buyer integrated inventory model with stochastic demand and variable, lot size-dependent lead time and assume that lead time consists of production and setup and transportation time. As a consequence, lead time may be reduced by crashing setup and transportation time, by increasing the production rate, or by reducing the lot size. We illustrate the benefits of reducing lead time in numerical examples and show that lead time reduction is especially beneficial in case of high demand uncertainty. Further, our studies indicate that a mixture of setup time and production time reduction is appropriate to lower expected total costs.