Optimal Expediting Policies for a Serial Inventory System with Stochastic Lead Time

Chiwon Kim, Diego Klabjan, David Simchi-Levi

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

In recent supply chains, often operating multiple delivery modes such as standard freight shipping and air is an effective way of addressing both delivery lead time uncertainties and service rates. We propose a model on how to optimally operate multiple delivery modes. We consider a serial supply chain and an expediting option from intermediate installations to the downstream of the chain. The goods move stochastically among the installations and the system faces a stochastic demand. We identify systems that yield simple optimal policies, in which both regular ordering and expediting follow a variant of the base stock policy. Expediting allows the system to be leaner due to the reduced regular order amount. In addition, we provide managerial insights linking expediting, base stock levels, and expediting costs based on analytical and numerical results.

Original languageEnglish (US)
Pages (from-to)1524-1536
Number of pages13
JournalProduction and Operations Management
Volume24
Issue number10
DOIs
StatePublished - Oct 1 2015

Keywords

  • dynamic ordering
  • expediting
  • inventory management
  • multi-echelon supply chain
  • stochastic lead time

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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