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Service Constrained (s, S) Inventory Systems with Priority Demand Classes and Lost Sales

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Author Info

  • Morris A. Cohen

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Paul R. Kleindorfer

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Hau L. Lee

    (Department of Industrial Engineering and Engineering Management, Stanford University, Stanford, California 94305)

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    Abstract

    This paper presents a model of an (s, S) inventory system in which there are two priority classes of customers. The model treats excess demands as lost sales and can accommodate an arbitrary deterministic lead time. After considering the associated Markov-chain model, an approximate, renewal-based model is derived. This approximation is used to develop a greedy heuristic which minimizes expected costs subject to a fill-rate service constraint. The paper concludes with the results of an extensive numerical test of both the accuracy of the approximation and the performance of the heuristic with respect to the true optimal solution. Results indicate good performance which deteriorates as the fill rate requirement and lead time increase.

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    File URL: http://dx.doi.org/10.1287/mnsc.34.4.482
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 34 (1988)
    Issue (Month): 4 (April)
    Pages: 482-499

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    Handle: RePEc:inm:ormnsc:v:34:y:1988:i:4:p:482-499

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    Related research

    Keywords: inventory/production; approximations; ordering; stochastic models;

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    Cited by:
    1. repec:dgr:uvatin:2097114 is not listed on IDEAS
    2. R. Dekker & R.M. Hill & M.J. Kleijn, 1997. "On the (S-1, S) Lost Sales Inventory Model with Priority Demand Classes," Tinbergen Institute Discussion Papers 97-114/4, Tinbergen Institute.
    3. ElHafsi, Mohsen, 2009. "Optimal integrated production and inventory control of an assemble-to-order system with multiple non-unitary demand classes," European Journal of Operational Research, Elsevier, vol. 194(1), pages 127-142, April.
    4. Bendre, Abhijit Bhagwan & Nielsen, Lars Relund, 2013. "Inventory control in a lost-sales setting with information about supply lead times," International Journal of Production Economics, Elsevier, vol. 142(2), pages 324-331.
    5. Barut, M. & Sridharan, V, 2004. "Design and evaluation of a dynamic capacity apportionment procedure," European Journal of Operational Research, Elsevier, vol. 155(1), pages 112-133, May.
    6. Chen-Ritzo, Ching-Hua & Ervolina, Tom & Harrison, Terry P. & Gupta, Barun, 2011. "Component rationing for available-to-promise scheduling in configure-to-order systems," European Journal of Operational Research, Elsevier, vol. 211(1), pages 57-65, May.
    7. Tan, Tarkan & Güllü, Refik & Erkip, Nesim, 2009. "Using imperfect advance demand information in ordering and rationing decisions," International Journal of Production Economics, Elsevier, vol. 121(2), pages 665-677, October.
    8. Kleijn, M.J. & Dekker, R., 1998. "An overview of inventory systems with several demand classes," Econometric Institute Research Papers EI 9838, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    9. Melchiors, Ph. & Dekker, R. & Kleijn, M.J., 1998. "Inventory rationing in an (s, Q) inventory model with lost sales a two demand classes," Econometric Institute Research Papers EI 9837, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

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