Is Pooling Lead-Time Risk by Splitting Orders Simultaneously Worthwhile?

IS POOLING LEAD-TIME RISK BY SPLITTING ORDERS SIMULTANEOUSLY WORTHWHILE? Douglas J. Thomas John E. Tyworth Smeal College of Business Penn State University dthomas@psu.edu, jet@psu.edu The proposition that pooling lead-time risk by splitting orders simultaneously may enable companies to reduce inventories without sacrificing service or significantly increasing order-processing costs has attracted the attention of academic researchers for more than 20 years. Yet, despite the protracted research interest, virtually no evidence of the proposition’s successful application has appeared in the literature. This paper tries to explain that paradox by investigating the proposition’s value for a broad range of industry conditions, as well as for a high-tech company in an international setting. The investigation considers important cost elements not included in previous work to conduct a realistic assessment of the value proposition. The paper proceeds as follows. The next section identifies the salient literature, the industrial setting, and the important limitations of previous work. The third section describes the framework for the investigation. The fourth section explains the design of computational experiments, which produce the results found in section five. The last section of the paper summarizes the key points and offers some guidelines for managers and recommendations for future research.