Integrated inventory models with controllable lead time and backorder discount considerations

Many companies use time as a means of differentiating themselves in the marketplace. In many literatures, the controllable lead time is regarded as a decision variable and decomposed into several components, each having a crashing cost function for the respective reduced lead time. When an item is out of stock, the loyal, patient and captive customers will wait until the outstanding orders arrive and are served from them. To compensate for the inconvenience of backordering and to secure orders, the supplier may offer a price discount on the stockout item. In this paper, an integrated inventory system in which shortage is allowed and both lead time and backordering are negotiable is investigated. The lead time crashing cost is represented as a function of reduced lead time and the quantities in the orders. There are two inventory models proposed in the paper, one with normally distributed demand, and another with generally distributed demand. r 2004 Elsevier B.V. All rights reserved.