Leadtime-Inventory Trade-Offs in Assemble-to-Order Systems

Paul Glasserman · Yashan Wang

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Supply Chain and Inventory Management Advanced Queuing Theory Analysis Product Development and Customization

Abstract

This paper studies the trade-off between inventory levels and the delivery leadtime offered to customers in achieving a target level of service. It addresses the question of how much a delivery leadtime can be reduced, per unit increase in inventory, at a fixed fill rate. We show that for a class of assemble-to-order models with stochastic demands and production intervals there is a simple linear trade-off between inventory and delivery leadtime, in a limiting sense, at high fill rates. The limiting slope is easy to calculate and can be interpreted as the approximate marginal rate for trading off inventory against leadtime at a constant level of service. We also investigate how various model features affect the trade-off—in particular, the impact of orders for multiple units of a single item and of orders for multiple units of different items.

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References

1987Applied Probability and Queues 1960Optimal Policies for a Multi-Echelon Inventory Problem 1985Sequential Analysis 1990Service Breakthroughs: Changing the Rules of the Game 1988Stopped Random Walks 1986An Inventory Model with Limited Production Capacity and Uncertain Demands II. The Discounted-Cost Criterion 1989Optimal Inventory Policies for Assembly Systems Under Random Demands 1986The Effect of Commonality on Safety Stock in a Simple Inventory Model

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2004Joint Inventory Replenishment and Component Allocation Optimization in an Assemble-to-Order System 2006Optimal Control of a High-Volume Assemble-to-Order System 2004Analysis and Optimization of a Multistage Inventory-Queue System 2007Optimal integrated production and inventory control of an assemble-to-order system with multiple non-unitary demand classes 2006Optimal Component Stocking Policy for Assemble-to-Order Systems with Lead-Time-Dependent Component and Product Pricing

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