Inventory control in a lost-sales setting with information about supply lead times

Supply chain collaboration using advancements in information technology is on the rise and this includes sharing of information between suppliers and buyers. In this paper we study the value of information about the development of supply lead times from a buyer's perspective. We consider a periodically reviewed single-item inventory system in a lost sales setting where at most one order can be outstanding at a time. We compare the performance of an inventory model assuming informed lead times to a model assuming uninformed independent and identically distributed lead times. We employ the dynamic programming approach to find the best state-dependent ordering policy to minimize the expected average total cost per time unit. Our numerical results show that acquiring information about the development of supply lead times is of value. In general the best policy suggested by the model assuming informed lead times causes lower average cost than the model assuming uninformed lead times. (C) 2012 Elsevier B.V. All rights reserved.