Inventory models with fixed and variable lead time crash costs considerations

• Published in: The Journal of the Operational Research Society 2002-09, Vol.53 (9), p.1048-1053
• Main Authors: Pan, J C-H, Hsiao, Y-C, Lee, C-J
• Format: Article
• Language: English
• Subjects: Administrative expenses; Applied sciences; Business and Management; Cost functions; crash cost; Exact sciences and technology; Inventories; inventory; Inventory control; Inventory control, production control. Distribution; Management; Mathematical models; Minimization of cost; Operational research and scientific management; Operational research. Management science; Operations Research/Decision Theory; Optimal solutions; Order quantity; Overtime costs; reduced lead time; Studies; Theoretical Paper; Theoretical Papers; Total costs; Unit costs; Variable costs
• ISSN: 0160-5682; 1476-9360
• DOI: 10.1057/palgrave.jors.2601354

Most of the literature pertaining to inventory problems assumes lead time to be a prescribed parameter and thus not subject to control. In many practical situations, inventory lead time can be shortened at the expense of additional cost. Hence, the variable lead time can be regarded as a decision variable since it can be decomposed into several components, each having a crash cost function for the respective reduced lead time. However, in the related research each such crash cost is often treated only as a function of the reduced lead time. In this paper, crash cost is represented as a function of both the order quantity and the reduced lead time. An inventory model with normal demand is first presented and another model with unknown demand distribution is also discussed. Numerical examples are included to illustrate the procedures of the algorithms. These examples also show that the crash priority changes as the demand changes.