IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v252y2016i1p145-155.html
   My bibliography  Save this article

Optimal two-period inventory allocation under multiple service level contracts

Author

Listed:
  • Protopappa-Sieke, Margarita
  • Sieke, Marcel A.
  • Thonemann, Ulrich W.

Abstract

Optimal inventory allocation policies have a significant impact on profits in the retail industry. A manufacturer ships products to the retailers’ stores where the end customers buy the product during the selling season. It has been put forward that it is beneficial for the manufacturer to reserve a certain fraction of the inventory for a second replenishment. Then the manufacturer can replenish the retailers’ inventories optimally and can take advantage of the risk pooling effect. In practice, retailers require a certain availability of the product throughout the selling season. Supply contracts are used to coordinate the delivery of products. Under such a contract, the manufacturer agrees to achieve a certain service level and to pay a financial penalty if she misses it. We analyze how a manufacturer responds to a service level contract if she wants to minimize her expected costs. We develop an allocation strategy for the multiple retailer case and find that our results allow for a better understanding of the effect of service level contracts on manufacturers and retailers.

Suggested Citation

  • Protopappa-Sieke, Margarita & Sieke, Marcel A. & Thonemann, Ulrich W., 2016. "Optimal two-period inventory allocation under multiple service level contracts," European Journal of Operational Research, Elsevier, vol. 252(1), pages 145-155.
    • Handle: RePEc:eee:ejores:v:252:y:2016:i:1:p:145-155
    DOI: 10.1016/j.ejor.2016.01.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221716000424
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2016.01.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gullu, Refik & Erkip, Nesim, 1996. "Optimal allocation policies in a two-echelon inventory problem with fixed shipment costs," International Journal of Production Economics, Elsevier, vol. 46(1), pages 311-321, December.
    2. Yanyi Xu & Arnab Bisi & Maqbool Dada, 2010. "A centralized ordering and allocation system with backorders and strategic lost sales," IISE Transactions, Taylor & Francis Journals, vol. 42(11), pages 812-824.
    3. Fernando Bernstein & Fangruo Chen & Awi Federgruen, 2006. "Coordinating Supply Chains with Simple Pricing Schemes: The Role of Vendor-Managed Inventories," Management Science, INFORMS, vol. 52(10), pages 1483-1492, October.
    4. Awi Federgruen & Paul Zipkin, 1984. "Approximations of Dynamic, Multilocation Production and Inventory Problems," Management Science, INFORMS, vol. 30(1), pages 69-84, January.
    5. Kaj Rosling, 2002. "Inventory Cost Rate Functions with Nonlinear Shortage Costs," Operations Research, INFORMS, vol. 50(6), pages 1007-1017, December.
    6. Edward J. McGavin & Leroy B. Schwarz & James E. Ward, 1993. "Two-Interval Inventory-Allocation Policies in a One-Warehouse N-Identical-Retailer Distribution System," Management Science, INFORMS, vol. 39(9), pages 1092-1107, September.
    7. Diks, E. B. & de Kok, A. G. & Lagodimos, A. G., 1996. "Multi-echelon systems: A service measure perspective," European Journal of Operational Research, Elsevier, vol. 95(2), pages 241-263, December.
    8. Douglas J. Thomas, 2005. "Measuring Item Fill-Rate Performance in a Finite Horizon," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 74-80, September.
    9. Verrijdt, J. H. C. M. & de Kok, A. G., 1996. "Distribution planning for a divergent depotless two-echelon network under service constraints," European Journal of Operational Research, Elsevier, vol. 89(2), pages 341-354, March.
    10. Marcel A. Sieke & Ralf W. Seifert & Ulrich W. Thonemann, 2012. "Designing Service Level Contracts for Supply Chain Coordination," Production and Operations Management, Production and Operations Management Society, vol. 21(4), pages 698-714, July.
    11. Michael J. Fry & Roman Kapuscinski & Tava Lennon Olsen, 2001. "Coordinating Production and Delivery Under a (z, Z)-Type Vendor-Managed Inventory Contract," Manufacturing & Service Operations Management, INFORMS, vol. 3(2), pages 151-173, August.
    12. Ki-Seok Choi & J. G. Dai & Jing-Sheng Song, 2004. "On Measuring Supplier Performance Under Vendor-Managed-Inventory Programs in Capacitated Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 6(1), pages 53-72, April.
    13. Paul Zipkin, 1984. "On the Imbalance of Inventories in Multi-Echelon Systems," Mathematics of Operations Research, INFORMS, vol. 9(3), pages 402-423, August.
    14. Peter L. Jackson, 1988. "Stock Allocation in a Two-Echelon Distribution System Or "What to Do Until Your Ship Comes In"," Management Science, INFORMS, vol. 34(7), pages 880-895, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cheaitou, Ali & Cheaytou, Rima, 2019. "A two-stage capacity reservation supply contract with risky supplier and forecast updating," International Journal of Production Economics, Elsevier, vol. 209(C), pages 42-60.
    2. Qiuxiang Li & Xingli Chen & Yimin Huang & Huangbao Gui & Shengyang Liu, 2019. "The Impacts of Green Innovation Input and Channel Service in a Dual-Channel Value Chain," IJERPH, MDPI, vol. 16(22), pages 1-26, November.
    3. Abbasi, B. & Hosseinifard, Z. & Alamri, O. & Thomas, D. & Minas, J.P., 2018. "Finite time horizon fill rate analysis for multiple customer cases," Omega, Elsevier, vol. 76(C), pages 1-17.
    4. Raul Oltra-Badenes & Hermenegildo Gil-Gomez & Jose M Merigo & Daniel Palacios-Marques, 2019. "Methodology and model-based DSS to managing the reallocation of inventory to orders in LHP situations. Application to the ceramics sector," PLOS ONE, Public Library of Science, vol. 14(7), pages 1-19, July.
    5. Junhai Ma & Weiya Di & Hao Ren, 2017. "Complexity Dynamic Character Analysis of Retailers Based on the Share of Stochastic Demand and Service," Complexity, Hindawi, vol. 2017, pages 1-12, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van der Heijden, Matthieu C., 1999. "Multi-echelon inventory control in divergent systems with shipping frequencies," European Journal of Operational Research, Elsevier, vol. 116(2), pages 331-351, July.
    2. Johan Marklund & Kaj Rosling, 2012. "Lower Bounds and Heuristics for Supply Chain Stock Allocation," Operations Research, INFORMS, vol. 60(1), pages 92-105, February.
    3. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    4. Sven Axsäter & Johan Marklund & Edward A. Silver, 2002. "Heuristic Methods for Centralized Control of One-Warehouse, N-Retailer Inventory Systems," Manufacturing & Service Operations Management, INFORMS, vol. 4(1), pages 75-97, October.
    5. Huaxiao Shen & Tian Tian & Han Zhu, 2019. "A Two-Echelon Inventory System with a Minimum Order Quantity Requirement," Sustainability, MDPI, vol. 11(18), pages 1-22, September.
    6. Lagodimos, A.G. & Koukoumialos, S., 2008. "Service performance of two-echelon supply chains under linear rationing," International Journal of Production Economics, Elsevier, vol. 112(2), pages 869-884, April.
    7. Sainathan, Arvind & Groenevelt, Harry, 2019. "Vendor managed inventory contracts – coordinating the supply chain while looking from the vendor’s perspective," European Journal of Operational Research, Elsevier, vol. 272(1), pages 249-260.
    8. Geng, Wei & Qiu, Minmin & Zhao, Xiaobo, 2010. "An inventory system with single distributor and multiple retailers: Operating scenarios and performance comparison," International Journal of Production Economics, Elsevier, vol. 128(1), pages 434-444, November.
    9. Felipe Caro & Jérémie Gallien, 2010. "Inventory Management of a Fast-Fashion Retail Network," Operations Research, INFORMS, vol. 58(2), pages 257-273, April.
    10. Yuanguang Zhong & Zhichao Zheng & Mabel C. Chou & Chung-Piaw Teo, 2018. "Resource Pooling and Allocation Policies to Deliver Differentiated Service," Management Science, INFORMS, vol. 64(4), pages 1555-1573, April.
    11. Howard, Christian & Marklund, Johan, 2011. "Evaluation of stock allocation policies in a divergent inventory system with shipment consolidation," European Journal of Operational Research, Elsevier, vol. 211(2), pages 298-309, June.
    12. Guan, Ruoxi & Zhao, Xiaobo, 2010. "On contracts for VMI program with continuous review (r, Q) policy," European Journal of Operational Research, Elsevier, vol. 207(2), pages 656-667, December.
    13. Assaf Avrahami & Yale T. Herer & Retsef Levi, 2014. "Matching Supply and Demand: Delayed Two-Phase Distribution at Yedioth Group—Models, Algorithms, and Information Technology," Interfaces, INFORMS, vol. 44(5), pages 445-460, October.
    14. Southard, Peter B. & Swenseth, Scott R., 2008. "Evaluating vendor-managed inventory (VMI) in non-traditional environments using simulation," International Journal of Production Economics, Elsevier, vol. 116(2), pages 275-287, December.
    15. Alain Bensoussan & Qi Feng & Suresh P. Sethi, 2011. "Achieving a Long-Term Service Target with Periodic Demand Signals: A Newsvendor Framework," Manufacturing & Service Operations Management, INFORMS, vol. 13(1), pages 73-88, February.
    16. Diks, E. B. & de Kok, A. G. & Lagodimos, A. G., 1996. "Multi-echelon systems: A service measure perspective," European Journal of Operational Research, Elsevier, vol. 95(2), pages 241-263, December.
    17. Ankur Goel & Genaro J. Gutierrez, 2011. "Multiechelon Procurement and Distribution Policies for Traded Commodities," Management Science, INFORMS, vol. 57(12), pages 2228-2244, December.
    18. Agrawal, Vipul & Chao, Xiuli & Seshadri, Sridhar, 2004. "Dynamic balancing of inventory in supply chains," European Journal of Operational Research, Elsevier, vol. 159(2), pages 296-317, December.
    19. Bollapragada, rinivas & Akella, Ram & Srinivasan, Ramesh, 1998. "Centralized ordering and allocation policies in a two-echelon system with non-identical warehouses," European Journal of Operational Research, Elsevier, vol. 106(1), pages 74-81, April.
    20. Geert-Jan van Houtum & Alan Scheller-Wolf & Jinxin Yi, 2007. "Optimal Control of Serial Inventory Systems with Fixed Replenishment Intervals," Operations Research, INFORMS, vol. 55(4), pages 674-687, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:252:y:2016:i:1:p:145-155. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.