The Joint Effect of Leadtime Variance and Lot Size in a Parallel Processing Environment

• Published in: Management science 1996-09, Vol.42 (9), p.1352-1363
• Main Authors: Song, Jing-Sheng, Zipkin, Paul H
• Format: Article
• Language: English
• Subjects: Applied sciences; Approximation; Comparative analysis; Deconditioning; Error rates; Exact sciences and technology; heavy traffic approximation; Inventories; Inventory control; Inventory control, production control. Distribution; Inventory management; inventory model; leadtime variance; lot size; Management; Operational research and scientific management; Operational research. Management science; Operations research; Overestimates; Performance metrics; Poisson process; Processing industry; q) inventory model; Random variables; stochastic leadtimes; Stochastic models; Studies; Underestimates; Variance; Variances
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.42.9.1352

We study a basic ( r , q ) system, in which the demand is a Poisson process and the leadtimes are independent, identically-distributed random variables. The key issue is the joint effect of the leadtime variance and the lot size q on performance. We know that, under a simple base-stock policy (with q = 1), the leadtime variance has no effect at all. We find here that, for larger q , the leadtime variance can have a significant adverse impact on performance. To explore this effect, we test two simple approximations. The simplest ignores the leadtime variance. The second approach is only a bit more complex; it captures the variance effect through a hybrid of two limiting approximations. Both methods provide useful information, but the second is more robust.