An inventory reservation problem with nesting and fill rate-based performance measures
In many inventory settings companies wish to provide customer-differentiated service levels. These may, for example, be motivated by differences in the perceived customer lifetime value or by specific contractual agreements. One approach to provide differentiated service levels is to reserve some portion of the available inventory exclusively for specific customer classes. Existing approaches to inventory reservation are typically based on the assumption that a company can assign a customer specific revenue or penalty cost to any order or unit of demand filled or unfulfilled. In practice, however, it is usually extremely difficult to accurately estimate (especially long term) monetary implications of meeting or not meeting customer demand and corresponding service level requirements. The research presented in this paper addresses the problem of setting appropriate inventory reservations for different customer classes based on fill rate-based performance measures. We model a single period inventory reservation problem with two customer classes and nesting. We develop exact expressions for two conflicting performance measures: (1) the expected fill rate of high priority customers and (2) the expected loss in the system fill rate induced by inventory reservation. With these expressions a decision maker can analyze the tradeoff between the loss in overall system performance and the higher expected fill rates for prioritized customers. We provide analytical insights into the effects of nesting and the impact of relevant problem parameters on these two performance measures. The analytical insights are illustrated and highlighted through a set of numerical examples. Although we limit our analysis to a single period inventory reservation problem, we expect that our results can be utilized in a wide range of problem settings in which a decision maker has to ration a perishable resource among different classes of customers.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hasan Arslan & Stephen C. Graves & Thomas A. Roemer, 2007. "A Single-Product Inventory Model for Multiple Demand Classes," Management Science, INFORMS, vol. 53(9), pages 1486-1500, September.
- Alan Kaplan, 1969. "Stock Rationing," Management Science, INFORMS, vol. 15(5), pages 260-267, January.
- Steven Nahmias & W. Steven Demmy, 1981. "Operating Characteristics of an Inventory System with Rationing," Management Science, INFORMS, vol. 27(11), pages 1236-1245, November.
- Donald M. Topkis, 1968. "Optimal Ordering and Rationing Policies in a Nonstationary Dynamic Inventory Model with n Demand Classes," Management Science, INFORMS, vol. 15(3), pages 160-176, November.
- Eric T. Anderson & Gavan J. Fitzsimons & Duncan Simester, 2006. "Measuring and Mitigating the Costs of Stockouts," Management Science, INFORMS, vol. 52(11), pages 1751-1763, November.
- Richard V. Evans, 1968. "Sales and Restocking Policies in a Single Item Inventory System," Management Science, INFORMS, vol. 14(7), pages 463-472, March.
- Albert Y. Ha, 1997. "Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales," Management Science, INFORMS, vol. 43(8), pages 1093-1103, August.
- Vinayak Deshpande & Morris A. Cohen & Karen Donohue, 2003. "A Threshold Inventory Rationing Policy for Service-Differentiated Demand Classes," Management Science, INFORMS, vol. 49(6), pages 683-703, June.
- Francis de Véricourt & Fikri Karaesmen & Yves Dallery, 2002. "Optimal Stock Allocation for a Capacitated Supply System," Management Science, INFORMS, vol. 48(11), pages 1486-1501, November.
When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:393-402. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.