The Effect of Reducing Leadtime on Inventory Levels-Simulation Analysis

The allowed safety stock level reduction and accompanying reduction in average on-shelf inventory level are evaluated, for prescribed system performance requirements, as a function of mean leadtime reduction. The general simulation technique developed for this purpose allows the treatment of the s, S periodic review inventory problem with both demands and leadtime being stochastic. Some results obtained for a military supply system, where the reduction in leadtime is achieved by resorting to airlift rather than sealift, are presented. In addition, generalizations as to the effect of certain parameters on the reductions allowable for general situations are given. Finally, a simplified means of predicting these effects by an empirical method is indicated.