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Base stock policies with degraded service to larger orders

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Author Info

  • Du, Bisheng

    ()
    (Department of Business Studies, Aarhus School of Business)

  • Larsen, Christian

    ()
    (Department of Business Studies, Aarhus School of Business)

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    Abstract

    We study an inventory system controlled by a base stock policy assuming a compound renewal demand process. We extend the base stock policy by incorporating rules for degrading the service of larger orders. Two specific rules are considered, denoted Postpone(q,t) and Split(q), respectively. The aim of using these rules is to achieve a given order fill rate of the regular orders (those of size less than or equal to the parameter q) having less inventory. We develop mathematical expressions for the performance measures order fill rate (of the regular orders) and average on-hand inventory level. Based on numerical experiments, our conclusion is that Split(q) seems to perform best.

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    File URL: http://research.asb.dk/fbspretrieve/2997/L_2008_07.PDF
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    Bibliographic Info

    Paper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series CORAL Working Papers with number L-2008-07.

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    Length: 21 pages
    Date of creation: 01 Jan 2008
    Date of revision:
    Handle: RePEc:hhb:aarbls:2008-007

    Contact details of provider:
    Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
    Fax: + 45 86 15 19 43
    Web page: http://www.asb.dk/about/departments/bs.aspx
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    Related research

    Keywords: base stock policy; compound renewal process; order fill rate; differentiated service;

    References

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    1. Guillermo Gallego & Özalp Özer, 2001. "Integrating Replenishment Decisions with Advance Demand Information," Management Science, INFORMS, vol. 47(10), pages 1344-1360, October.
    2. Rema Hariharan & Paul Zipkin, 1995. "Customer-Order Information, Leadtimes, and Inventories," Management Science, INFORMS, vol. 41(10), pages 1599-1607, October.
    3. Teunter, Ruud H. & Klein Haneveld, Willem K., 2008. "Dynamic inventory rationing strategies for inventory systems with two demand classes, Poisson demand and backordering," European Journal of Operational Research, Elsevier, vol. 190(1), pages 156-178, October.
    4. Thomas, Douglas J. & Tyworth, John E., 2006. "Pooling lead-time risk by order splitting: A critical review," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(4), pages 245-257, July.
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