The impact of lead time reliability in freight transport: A logistics assessment of transport economics findings

This paper considers speed and reliability, measured by the average and variance of the lead time, to examine the relevance of the latter variable on inventory costs. By using a flexible simulation framework, it is shown that reducing variability does not necessarily reduce costs and might in fact increase the costs of safety stock, depending on the shape of the demand distribution during lead time and the targeted service level. This offers a novel explanation for the wide variety of value of reliability figures obtained in empirical transport economics research.

► Our simulation model tests recent findings on the value of reliability.
► It offers a rationale for heterogeneous/counterintuitive results from literature.
► The simulation model supports real-life decision making on speed and reliability.
► The analysis provides guidelines for further empirical research on these topics.