| Abstract:
We consider a periodic review stochastic inventory system in which
shipments are subjected to random delays. For this inventory system, we
analyze various response strategies devised to mitigate the risk of
demand-supply mismatch resulting from shipment delays. These strategies
differ in operational flexibility and lead-time visibility required for
their implementation. With each of the response strategies, we derive
the optimal policy for making
decisions and illustrate the effects of operational flexibility and
lead-time visibility on the structure of optimal policies. We provide
cost comparison of these strategies, using an extensive set of
numerically solved examples. We show that while the operational
flexibility mitigates the adverse effect of long lead-times, the
lead-time visibility provides protection from the risk of lead-time
uncertainty. Further, we show that operational flexibility and lead-time
visibility enhance each other's values, or in other words are
complementary in nature.
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