THE VALUE OF SUPPLIER INFORMATION TO IMPROVE MANAGEMENT OF A RETAILERS INVENTORY

The distribution of lead time demand is essential for determining reor der points in inventory systems. Usually, the distribution of lead tim e demand is approximated directly. However, in some cases it may be wo rthwhile to take the demand per unit time and lead time into account, particularly when specific information is available. This paper deals with the situation where a supplier, who produces on order in fixed pr oduction cycles, provides information on the status of the coming prod uction run. The retailer can use this information to gain insight into the lead-time process. A fixed order (s(t), Q) strategy is presented, with a set of reorder points s(t,) depending on the time t until the first possible delivery, which is determined by the information of the supplier. A Markov model that analyzes a given (s(t,) Q) strategy is used to quantify the value of the information provided by the supplier . Some numerical examples show that the approach may lead to considera ble cost savings compared to the traditional approach that uses only o ne single reorder point, based on a two-moments approximation. Using t his numerical insight, the pros and cons of a more frequent exchange o f information between retailers and suppliers can be balanced.