Hidden effects of variable order review intervals in inventory control

Purpose – Whereas inventory theory traditionally assumes the periodic review inventory model (R, T), with an order‐up‐to level R, has a random demand and lead time coupled with a deterministic review interval T, firms often deviate from a strict adherence to a fixed review interval when they attempt to capture transportation scale efficiencies. Employing this policy introduces additional supply chain variability. This paper aims to provide an expression for the standard deviation of demand during the protection period, important in setting safety stock, as well as an expression for the amount of order variance amplification induced by a stochastic review interval.Design/methodology/approach – Analytical modeling is used to develop the expression for the standard deviation of demand during the protection period as well as the calculation for the amount of order variance amplification induced by a stochastic review interval.Findings – In terms of the variance of demand over the protection period, a stochast...

[1]  D. Gross,et al.  The Effect of Reducing Leadtime on Inventory Levels-Simulation Analysis , 1969 .

[2]  Chi Chiang.  Order splitting under periodic review inventory systems , 2001 .

[3]  Gérard P. Cachon,et al.  Managing Supply Chain Demand Variability with Scheduled Ordering Policies , 1999 .

[4]  Terry P. Harrison,et al.  The Bullwhip Effect—Impact of Stochastic Lead Time, Information Quality, and Information Sharing: A Simulation Study , 2004 .

[5]  Bülent Sezen,et al.  Changes in performance under various lengths of review periods in a periodic review inventory control system with lost sales: A simulation study , 2006 .

[6]  Katy S. Azoury.  Bayes Solution to Dynamic Inventory Models Under Unknown Demand Distribution , 1985 .

[7]  M. Fu,et al.  Optimization of( s, S ) inventory systems with random lead times and a service level constraint , 1998 .

[8]  Fangruo Chen,et al.  Order Volatility and Supply Chain Costs , 2004, Oper. Res..

[9]  Yunzeng Wang,et al.  Periodic review production models with variable capacity, random yield, and uncertain demand , 1996 .

[10]  Mark L. Bennion,et al.  ESTABLISHING A MINIMUM ORDER POLICY , 1986 .

[11]  T. Morton,et al.  A periodic review, production planning model with uncertain capacity and uncertain demand—optimality of extended myopic policies , 1994 .

[12]  Hau L. Lee,et al.  Expressions for item fill rates in periodic inventory systems , 1995 .

[13]  David F. Pyke,et al.  Inventory management and production planning and scheduling , 1998 .

[14]  Morris A. Cohen,et al.  Pooling in two-location inventory systems with non-negligible replenishment lead times , 1992 .

[15]  Ronald H. Ballou,et al.  Business Logistics/Supply Chain Management -5/E , 2004 .

[16]  Chi Chiang,et al.  Optimal replenishment for a periodic review inventory system with two supply modes , 2003, Eur. J. Oper. Res..

[17]  Frank Y. Chen,et al.  Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information.: The Impact of Forecasting, Lead Times, and Information. , 2000 .

[18]  James A. Kahn.  Inventories and the volatility of production , 1986 .

[19]  Philip T. Evers,et al.  THE IMPACT OF TRANSSHIPMENTS ON SAFETY STOCK REQUIREMENTS , 1996 .

[20]  Liang-Yuh Ouyang,et al.  A note on periodic review inventory model with controllable setup cost and lead time , 2004, Comput. Oper. Res..

[21]  Uttarayan Bagchi,et al.  MODELING DEMAND DURING LEAD TIME , 1984 .

[22]  Andrew Caplin.  The Variability of Aggregate Demand with (S, s) Inventory Policies , 1985 .

[23]  Hau L. Lee,et al.  Information distortion in a supply chain: the bullwhip effect , 1997 .

[24]  Kenneth Gilbert,et al.  An ARIMA Supply Chain Model , 2005, Manag. Sci..

[25]  Chao-Hsien Chu,et al.  The effect of lead-time variability: The case of independent demand , 1986 .

[26]  A. Raman,et al.  The Achilles Heel of Supply Chain Management , 2001 .

[27]  Suresh P. Sethi,et al.  A Periodic Review Inventory Model with Demand Influenced by Promotion Decisions , 1999 .

[28]  Gérard P. Cachon.  Managing a Retailer's Shelf Space, Inventory, and Transportation , 2001, Manuf. Serv. Oper. Manag..

[29]  Arthur F. Veinott,et al.  Analysis of Inventory Systems , 1963 .

[30]  David F. Pyke,et al.  An inventory model embedded in designing a supply contract , 1997 .

[31]  George Tagaras,et al.  A Periodic Review Inventory System with Emergency Replenishments , 2001, Manag. Sci..

[32]  Genaro J. Gutierrez,et al.  A periodic review inventory system with two supply modes , 1996 .

[33]  Karen Donohue,et al.  Behavioral Causes of the Bullwhip Effect and the Observed Value of Inventory Information , 2006, Manag. Sci..

[34]  Sunil Gupta,et al.  Supply Chain Decision Making: Will Shorter Cycle Times and Shared Point-of-Sale Information Necessarily Help? , 2004, Manag. Sci..