This article addresses the economic impact of improving delivery performance in a two-stage supply chain when delivery performance is evaluated with respect to a delivery window. Building on contemporary management theories that advocate variance reduction as the critical step in improving the overall performance of a system, an expected cost model is developed that financially quantifies the benefit of reducing delivery variance. The present worth of the expected costs, due to untimely delivery, that accrue over a finite time horizon provide management with input for justifying financial investment to support a continuous improvement program to reduce delivery variance. The concept of managerial neglect is introduced and quantified as an opportunity cost of management neglecting to improve delivery performance in a timely manner.
ASJC Scopus subject areas
- Economics and Econometrics