Optimization of a 2-stage series inventory system with stochastic demand and endogenous lead time uncertainty

Abstract

Based on inventory theory, stochastic optimization and probability theory, we analyze a stochastic demand -based supply chain inventory problem and formulate models to explore the optimization of a 2-stage series inventory system and the effects of demand uncertainty on endogenous lead time uncertainty under different conditions in this paper. We develop supplier and manufacturer models with stochastic market demand and deterministic supplier lead time in a two stage series inventory system. Both the supplier and manufacturer use continuous review inventory policies. Relationships between demand uncertainty and endogenous lead time uncertainty are measured. Firstly, we clarify the rationales of endogenous lead time uncertainty and their effects to supply chain members' inventory decisions. Secondly, we discuss the market demand uncertainty's effects on endogenous lead time uncertainty and emphasize on supply chain inventory optimization and decisions. We also have interesting findings in the numerical studies part.