Lead time aggregation: A three-echelon supply chain model

• Phenomenon of lead time aggregation in a three-echelon SC is investigated.
• Effects of upstream stochastic lead times on the SC performance are analyzed.
• A coordination mechanism based on increasing upstream reorder points is proposed.
• By applying the proposed model total SC profit has a considerable increase.
• All SC members benefit from the proposed scheme.

In this paper, destructive effects of upstream aggregated stochastic lead times on the supply chain (SC) performance are analyzed. For this purpose, a three-echelon SC consisting of one producer, one distributor, and one retailer is modeled. Both the producer and distributor face stochastic lead times, which can be also aggregated to create a long unpredictable lead time. In order to scale down shortages at the retailer site, an incentive scheme is proposed to convince the upstream members to increase their reorder points. Applying the coordinated model considerably increases the total profit earned by the whole SC as well as all SC members.