Cost implications of planned lead times in supply chain operations planning

In this paper we consider Supply Chain Operations Planning (SCOP) in a rolling horizon context under demand uncertainty. Production plans are calculated using a linear programming model. While in most mathematical programming models for SCOP the lead time is considered to be equal to zero or equal to the minimum processing time, we consider planned lead times. In this paper we concentrate on the optimal setting of the planned lead time. From queueing theory we know that the waiting time depends on the variance of the inter arrival times and on the utilization rate of the server. Since lead time consists for a part of waiting time, we consider the setting of planned lead times for various combinations of demand variance and utilization rates. A third factor we consider in the experiments is the difference in holding costs between the items produced by the capacitated resource and the end items. The results show that models with planned lead times are preferable above previous models without planned lead times.