Explain the impacts of order cycle time length and variability on both buyers and sellers.

While interest has traditionally focused more on the overall length of the OTC cycle, recent attention has been centered on the variability or consistency of this process. Industry practices have shown that while the absolute length of time is important, variability is more important. A driving force behind the attention to OTC cycle variability is safety stock. The absolute length of the order cycle will influence demand inventory. The concept of the order cycle is used here because the focus is on the delivery of product to the buyer and not on the flow of cash to the supplier. For example, assume that the order cycle (time from order placement to order receipt) takes 10 days to complete and the buyer needs five units per day for its manufacturing process. Assuming the basic economic order quantity (EOQ) model is being used by the buyer, the buyer will place an order when it has 50 units of demand inventory on hand. Assuming that the supplier has been able to reduce the order cycle to eight days, the buyer will now place an order when it has 40 units of demand inventory on hand. This is a reduction of 10 units of demand inventory on hand during lead time for the buyer.