Planning lead time versus instantaneous replenishment

Objective

After completing this lesson, you will be able to plan lead time versus instantaneous replenishment.

Pipeline Stock is Driven by Length of Lead Time

Pipeline stock (PS) is based on the forecasts of all periods during the order processing and delivery Lead Time (LT).

The pipeline stock key drivers are:

Lead times, such as order processing, transit production, or receipt of goods
Demand

Note

Pipeline stock increases with lead time.

The figure describes the Pipeline Stock.

Example: No Variability, PBR = 1, LT = 2

Consider stock definitions. What is the safety stock in this model when there is zero variability?

Answer: None, assuming no variability.

Introduction: Review weekly, lead-time (LT) 2 weeks (period between reviews (PBR) = 1, LT = 2)

Introduce formula: Safety stock (SS) = 0 (no variability) target inventory position (TIP) = (PBR+LT) µ + SS

Example 3 shows a scenario with no variability, PBR = 1, and lead time = 2.

The figure describes a safety stock model with zero variability.

The initial on-hand value is 0 units and the initial pipeline value is 200 units. 100 units arriving in periods 1 and 2.

Based on this, the calculations are carried out as indicated in the following figure.

Repetitions are done for periods 3 and 4, and the average is calculated.

Note

When lead time increases, pipeline stock increases. This also has a safety stock effect, because the length of time exposed to risk increases exposure.

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