The Effectiveness of Investment in Lead Time Reduction for a Make-to-Stock Product

IIE Transactions, Vol. 36, pp. 333-344, 2004

12 Pages Posted: 9 Jan 2007

See all articles by Saibal Ray

Saibal Ray

McGill University - Desautels Faculty of Management

Yigal Gerchak

Tel Aviv University - Department of Industrial Engineering

Elizabeth Jewkes

University of Waterloo

Abstract

This paper focuses on a firm selling a make-to-stock product with a constant customer demand rate. The firm follows an exact (Q, r ) policy for raw material inventory control and faces a random eplenishment lead time. Through this research, we wish to gain a better understanding of the impact of investing in reducing supply lead time when the investment costs have to be borne, partly or fully, by the firm. This work is motivated by the recognition that lead time reduction is now of strategic importance in the successful operation of a firm. We examine different types of investment schemes in replenishment lead time reduction and the different cost models they generate.We present analytical and numerical results and insights for each type of model, compute the optimal (Q, r ) policy and the associated investment levels. The work presents new results, and sheds light on some apparently counter-intuitive observations.

Keywords: Inventory model, Lead time reduction, Outsourcing, Investment Analysis

Suggested Citation

Ray, Saibal and Gerchak, Yigal and Jewkes, Elizabeth, The Effectiveness of Investment in Lead Time Reduction for a Make-to-Stock Product. IIE Transactions, Vol. 36, pp. 333-344, 2004, Available at SSRN: https://ssrn.com/abstract=955456

Saibal Ray (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. (W)
Montreal, Quebec H3A 2M1
Canada

HOME PAGE: http://people.mcgill.ca/saibal.ray/

Yigal Gerchak

Tel Aviv University - Department of Industrial Engineering ( email )

Tel Aviv 6997801
Israel

Elizabeth Jewkes

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

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