Responding to Shipment Delays: The Roles of Operational Flexibility & Lead‐Time Visibility

Abstract

We consider inventory management of a firm that orders periodically from a distantly located supplier and faces random delays in shipment. We analyze various response strategies that the firm may employ to mitigate the risk of demand–supply mismatch resulting from shipment delays. We categorize these strategies along two dimensions: operational flexibility, defined by the flexible resource employed; and lead‐time visibility, defined by the availability of information on shipment delays. For each of the response strategies, we provide analytical characterization of the optimal inventory policy. By comparing the optimal policies across response strategies, we offer insights into the effect of operational flexibility and lead‐time visibility on firm's inventory performance. Using an extensive set of numerically solved examples, we provide cost comparison across these strategies—we show that while the operational flexibility mitigates the adverse effect of long lead‐times, the lead‐time visibility provides protection from lead‐time uncertainty. Further, operational flexibility and lead‐time visibility enhance each other's values, hence must be employed together to gain their full benefits.

Managing Medical Item Inventories under Order Loss*

“…Surely, we do not analyze each possible benefit as well as some complications of our solutions. For instance, the use of RTIT may improve the visibility in drug supply chain and be used to mitigate the risk of supply-demand mismatches based on lead time issues (Jain, 2018). Also, conveying order information by COET and via RTIT and keeping this information in computer records may improve the efficient use of medical items and medical personnel as well as patient care and safety.…”