Impact of manufacturing response time on retailer inventory

Retailers receiving items from a manufacturer carry inventory to meet customer demand. As items are sold, a retailer orders new items to replenish the inventory. Once an order is placed, there is a time taken for the items to be delivered to the retailer. This time is the manufacturing response time. It includes processing, production, and delivery times. These different components of time can result in response times that are long and uncertain. This paper develops a queueing model for analysing how manufacturing response time affects the inventory needed at retailers to meet demand. The model accounts for variability in response times and allows for products to be delivered to a retailer in a different sequence than they were ordered. Simple equations are derived for the average inventory in terms of demand and response time parameters. The equations show how shortening average response time can substantially reduce retailer inventory.