Safety Stock Optimization under Lead Time Ambiguity
- People & Global Business Association
- Global Business and Finance Review
- Vol.27 No.5
- : SCOPUS, KCI등재
- 2022.10
- 55 - 64 (10 pages)
Purpose: The purpose of this study is to investigate how ambiguity faced by the risk-neutral manager affects the firm’s optimal level of safety stock. Design/methodology/approach: This study adopts the traditional model of Arrow et al. (1951) and employ a manager who has multiple prior beliefs about the probability distribution of the lead time. Findings: This study finds that facing lead time ambiguity, the manager becomes more conservative when choosing the optimal stock level to hold and the amount of safety stock. Research limitations/implications: The future research would consider a risk-averse manager who could be compensated or punished as a result of stock management. Then the future research would examine the interactive effects of the manager’s risk aversion and lead time ambiguity on the optimal safety stock level. Originality/value: This would be the first study that investigates the effects of ambiguity on the level of safety stock.
I. Introduction
II. The Model
III. Optimal Safety Stock
IV. Numerical Implications
V. Concluding Remarks
References