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On the Evaluation of Shortage Costs for Inventory Control of Finished Goods

Author

Listed:
  • Muhittin Oral

    (The Scientific and Techinical Research Conucil of Turkey, Ankara)

  • Michael S. Salvador

    (Asystance Corporation, Research Triangle Park, North Carolina)

  • Arnold Reisman

    (Case Western Reserve University)

  • Burton V. Dean

    (Case Western Reserve University)

Abstract

This paper summarizes work performed in evaluating shortage costs associated with stockouts for each of a manufacturer's seven thousand catalogued line items. A modified version of a decision tree model proposed by Yu Chang is employed in a determination of estimated unit shortage costs for a stratified random sample of items. The data required by this model for describing customer behavior were obtained via direct interviews and an extensive mail survey, while the remaining data were extracted from records of the manufacturer. The results are extended to all items on the basis of an excellent correlation between, the evaluated unit shortage costs and unit gross profits of the items in the sample.

Suggested Citation

  • Muhittin Oral & Michael S. Salvador & Arnold Reisman & Burton V. Dean, 1972. "On the Evaluation of Shortage Costs for Inventory Control of Finished Goods," Management Science, INFORMS, vol. 18(6), pages 344-351, February.
    • Handle: RePEc:inm:ormnsc:v:18:y:1972:i:6:p:b344-b351
    DOI: 10.1287/mnsc.18.6.B344
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    Cited by:

    1. Brahimi, Nadjib & Absi, Nabil & Dauzère-Pérès, Stéphane & Nordli, Atle, 2017. "Single-item dynamic lot-sizing problems: An updated survey," European Journal of Operational Research, Elsevier, vol. 263(3), pages 838-863.
    2. John Foreman & Jérémie Gallien & Julie Alspaugh & Fernando Lopez & Rohit Bhatnagar & Chee Chong Teo & Charles Dubois, 2010. "Implementing Supply-Routing Optimization in a Make-to-Order Manufacturing Network," Manufacturing & Service Operations Management, INFORMS, vol. 12(4), pages 547-568, August.
    3. Dennis Arnow & Sean P. Willems, 2017. "Practice Summary: Intel Calculates the Right Service Level for Its Products," Interfaces, INFORMS, vol. 47(4), pages 362-365, August.
    4. L. San-José & J. García-Laguna & J. Sicilia, 2009. "An economic order quantity model with partial backlogging under general backorder cost function," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 17(2), pages 366-384, December.
    5. Joseph Hall & Evan Porteus, 2000. "Customer Service Competition in Capacitated Systems," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 144-165, November.
    6. Birisci, Esma & McGarvey, Ronald G., 2016. "Inferring shortfall costs and integrating environmental costs into optimal production levels for an all-you-care-to-eat food service operation," International Journal of Production Economics, Elsevier, vol. 182(C), pages 157-164.
    7. Martin A. Lariviere & Evan L. Porteus, 1999. "Stalking Information: Bayesian Inventory Management with Unobserved Lost Sales," Management Science, INFORMS, vol. 45(3), pages 346-363, March.
    8. Liberopoulos, George & Tsikis, Isidoros & Delikouras, Stefanos, 2010. "Backorder penalty cost coefficient "b": What could it be?," International Journal of Production Economics, Elsevier, vol. 123(1), pages 166-178, January.
    9. Wu, Meng & Zhu, Stuart X. & Teunter, Ruud H., 2013. "Newsvendor problem with random shortage cost under a risk criterion," International Journal of Production Economics, Elsevier, vol. 145(2), pages 790-798.
    10. James D. Dana, Jr. & Nicholas C. Petruzzi, 2001. "Note: The Newsvendor Model with Endogenous Demand," Management Science, INFORMS, vol. 47(11), pages 1488-1497, November.

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