In pursuit of globalization and specialization, companies tend to outsource more of their supply processes. This may diminish their control over supply processes and increase uncertainties in supply lead times. In order to achieve acceptable service levels at minimum total costs, it is an additional challenge for the inventory system to manage the consequences of increased supply uncertainty with ubiquitous demand uncertainty. The purpose of this study is to obtain a better understanding of the performance of the widely used base-stock policy for both backorder and lostsales cases under different stochastic lead-time regimes. We consider a single-item inventory model managed by a continuously reviewed base-stock policy. Demand is Poisson and lead times are stochastically dependent under the common and often reasonable assumption that they are sequential. We study this model for both endogenous and exogenous supply systems and focus on the average stockout and average inventory as performance measures. Results show that the qualitative performance of neither of the backorder or lost-sales case differ significantly due to the choice of supply system. While, backorder and lost-sales inventory system can have qualitatively different performances under particular supply system.
Base stock; Lost sales; Exogenous and endogenous supply; Stochastic lead times
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Sixteenth International Working Seminar on Production Economics, 2010