Lead times and order sizes—A not so simple relationship

Abstract

Order quantity and lead time are two critical aspects of inventory management. In literature, lead time is considered as a constant or an uncontrollable stochastic variable. Theoretically, the order size has linear relationship with lead time meaning that order size increases when lead time increases. A data analysis from a Danish company reveals that the relationship between lead time and order size are not so simple. This paper focuses on analyzing the relationship between lead time and order size in order to answer two questions: (1) whether lead time is affected by order size or not; and (2) whether lead time and order size has linear relationship or not.