Title
Coordinating lead times and safety stocks under autocorrelated demand Coordinating lead times and safety stocks under autocorrelated demand
Author
Faculty/Department
Faculty of Sciences. Mathematics and Computer Science
Publication type
article
Publication
Amsterdam ,
Subject
Economics
Mathematics
Source (journal)
European journal of operational research. - Amsterdam
Volume/pages
232(2014) :1 , p. 52-63
ISSN
0377-2217
0377-2217
ISI
000325388000005
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
We consider a supply chain in which orders and lead times are linked endogenously, as opposed to assuming lead times are exogenous. This assumption is relevant when a retailer's orders are produced by a supplier with finite capacity and replenished when the order is completed. The retailer faces demands that are correlated over time - either positively or negatively - which may, for example, be induced by a pricing or promotion policy. The auto-correlation in demand affects the order stream placed by the retailer onto the supplier, and this in turn influences the resulting lead times seen by the retailer. Since these lead times also determine the retailer's orders and its safety stocks (which the retailer must set to cover lead time demand), there is a mutual dependency between orders and lead times. The inclusion of endogenous lead times and autocorrelated demand represents a better fit with real-life situations. However, it poses some additional methodological issues, compared to assuming exogenous lead times or stationary demand processes that are independent over time. By means of a Markov chain analysis and matrix analytic methods, we develop a procedure to determine the distribution of lead times and inventories, that takes into account the correlation between orders and lead times. Our analysis shows that negative autocorrelation in demand, although more erratic, improves both lead time and inventory performance relative to LID demand. Positive correlation makes matters worse than IID demand. Due to the endogeneity of lead times, these effects are much more pronounced and substantial error may be incurred if this endogeneity is ignored. (C) 2013 Elsevier B.V. All rights reserved.
E-info
https://repository.uantwerpen.be/docman/iruaauth/c3887e/10b5403.pdf
http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000325388000005&DestLinkType=RelatedRecords&DestApp=ALL_WOS&UsrCustomerID=ef845e08c439e550330acc77c7d2d848
http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000325388000005&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=ef845e08c439e550330acc77c7d2d848
http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000325388000005&DestLinkType=CitingArticles&DestApp=ALL_WOS&UsrCustomerID=ef845e08c439e550330acc77c7d2d848
Handle