The Joint Effect of Leadtime Variance and Lot Size in a Parallel Processing Environment

Management Science · 1996 · Volume 42 · Issue 9

Abstract

We study a basic ( r , q ) system, in which the demand is a Poisson process and the leadtimes are independent, identically-distributed random variables. The key issue is the joint effect of the leadtime variance and the lot size q on performance. We know that, under a simple base-stock policy (with q = 1), the leadtime variance has no effect at all. We find here that, for larger q , the leadtime variance can have a significant adverse impact on performance. To explore this effect, we test two simple approximations. The simplest ignores the leadtime variance. The second approach is only a bit more complex; it captures the variance effect through a hybrid of two limiting approximations. Both methods provide useful information, but the second is more robust.

Keywords

(r, q) inventory model, stochastic leadtimes, heavy traffic approximation, lot size, leadtime variance

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