The lead-time reliability paradox and inconsistent value-of-reliability estimates |
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| Affiliation: | 1. Smeal College of Business, 434B Business Building, Pennsylvania State University, University Park, PA 16802, USA;2. West Virginia University, College of Business & Economics, Office #309, Morgantown, WV 26506, USA;1. Department of Residential Care, Kempenhaeghe;2. Department of Neurology, Academic Center for Epileptology Kempenhaeghe;3. Department of Neurology, Maastricht University Medical Center;4. Faculty of Health, Medicine and Life Sciences, Maastricht University;5. Laboratory for Clinical Chemistry & Pharmacology, Kempenhaeghe;1. GH Sergievsky Center, College of Physicians and Surgeons, Columbia University, New York, New York;2. Department of Neurology, College of Physicians and Surgeons, Columbia University, New York, New York;3. Department of Epidemiology, Mailman School of Public Health, Columbia University, New York, New York;4. Taub Institute for Research on Alzheimer''s Disease and the Aging Brain, College of Physicians and Surgeons, Columbia University, New York, New York;5. Department of Population and Family Health, Mailman School of Public Health, Columbia University, New York, New York;6. Columbia Center for Children''s Environmental Health, Mailman School of Public Health, Columbia University, New York, New York;1. Vanderbilt University School of Medicine, Vanderbilt University Medical Center, Nashville, Tennessee;2. Department of Radiation Oncology, Vanderbilt University Medical Center, Nashville, Tennessee;3. Department of Neurology, Vanderbilt University Medical Center, Nashville, Tennessee;4. Department of Neurological Surgery, Vanderbilt University Medical Center, Nashville, Tennessee;5. Division of Critical Care Medicine, Department of Pediatrics, Vanderbilt University Medical Center, Nashville, Tennessee;6. Department of Anesthesiology, Vanderbilt University Medical Center, Nashville, Tennessee;7. Department of Radiology, Vanderbilt University Medical Center, Nashville, Tennessee;8. Division of Pediatric Neurology, Department of Pediatrics, Vanderbilt University Medical Center, Nashville, Tennessee;1. Department of Neurology, Beth Israel Deaconess Medical Center, Harvard Medical School, Boston, Massachusetts;2. Department of Neurology, Boston Children''s Hospital, Harvard Medical School, Boston, Massachusetts |
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| Abstract: | The value-of-reliability (VOR) reflects the savings in inventory-system costs from more reliable (less variable) lead times. Previous studies have revealed that more reliable, but positively skewed, lead times could actually increase optimal safety inventory when the probability of satisfying all demand during a replenishment cycle drops below 70%. Researchers claim that this paradox affects most firms and that it explains the inconsistent VOR estimates found in the transportation economics literature. Our investigation reveals that firms interested in high product availability may safely ignore the paradox and that less lead-time variability consistently increases VOR, the paradox notwithstanding. |
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| Keywords: | Lead-time uncertainty Safety inventory Freight transport Value of reliability |
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