Inventory rationing in an (s, Q) inventory model with lost sales and two demand classes

Philip Melchiors · Rommert Dekker · Marcel J. Kleijn

115 citations0/0 files storedJournal of the Operational Research Society

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Supply Chain and Inventory Management Advanced Queuing Theory Analysis Logistics and Transportation Systems

Abstract

Whenever demand for a single item can be categorised into classes of different priority, an inventory rationing policy should be considered. In this paper we analyse a continuous review (s, Q) model with lost sales and two demand classes. A so-called critical level policy is applied to ration the inventory among the two demand classes. With this policy, low-priority demand is rejected in anticipation of future high-priority demand whenever the inventory level is at or below a prespecified critical level. For Poisson demand and deterministic lead times, we present an exact formulation of the average inventory cost. A simple optimisation procedure is presented, and in a numerical study we compare the optimal rationing policy with a policy where no distinction between the demand classes is made. The benefit of the rationing policy is investigated for various cases and the results show that significant cost reductions can be obtained.

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References

1964Analysis of Inventory Systems.1982Principles of inventory and materials management 1997Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales 1968Optimal Ordering and Rationing Policies in a Nonstationary Dynamic Inventory Model with n Demand Classes 1965Optimal Policy in a Dynamic, Single Product, Nonstationary Inventory Model with Several Demand Classes 1981Operating Characteristics of an Inventory System with Rationing 1998A spare parts stocking policy based on equipment criticality 1988Service Constrained (s, S) Inventory Systems with Priority Demand Classes and Lost Sales

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2007Dynamic inventory rationing strategies for inventory systems with two demand classes, Poisson demand and backordering 2004Inventory rationing via drop-shipping in Internet retailing: A sensitivity analysis 2002On the (S − 1, S) lost sales inventory model with priority demand classes 1999An Overview of Inventory Systems with Several Demand Classes 2006Cost optimization in the lost sales inventory model with multiple demand classes

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