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Using imperfect advance demand information in lost-sales inventory systems with the option of returning inventory

Author

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  • Engin Topan
  • Tarkan Tan
  • Geert-Jan van Houtum
  • Rommert Dekker

Abstract

Motivated by real-life applications, we consider an inventory system where it is possible to collect information about the quantity and timing of future demand in advance. However, this Advance Demand Information (ADI) is imperfect as (i) it may turn out to be false; (ii) a time interval is provided for the demand occurrences rather than its exact time; and (iii) there are still customer demand occurrences for which ADI cannot be provided. To make best use of imperfect information and integrate it with inventory supply decisions, we allow for returning excess stock built up due to imperfections to the upstream supplier and we propose a lost-sales inventory model with a general representation of imperfect ADI. A partial characterization of the optimal ordering and return policy is provided. Through an extensive numerical study, we investigate the value of ADI and factors that affect that value. We show that using imperfect ADI can yield substantial savings, the amount of savings being sensitive to the quality of information; the benefit of the ADI increases considerably if the excess stock can be returned. We apply our model to a spare parts case. The value of imperfect ADI turns out to be significant.

Suggested Citation

  • Engin Topan & Tarkan Tan & Geert-Jan van Houtum & Rommert Dekker, 2018. "Using imperfect advance demand information in lost-sales inventory systems with the option of returning inventory," IISE Transactions, Taylor & Francis Journals, vol. 50(3), pages 246-264, March.
    • Handle: RePEc:taf:uiiexx:v:50:y:2018:i:3:p:246-264
    DOI: 10.1080/24725854.2017.1403060
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    Citations

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    Cited by:

    1. Oguzhan Vicil, 2021. "Optimizing stock levels for service-differentiated demand classes with inventory rationing and demand lead times," Flexible Services and Manufacturing Journal, Springer, vol. 33(2), pages 381-424, June.
    2. Feng, Haofang & Zhang, Sheng Hao & Zhang, Yong, 2023. "Managing production-inventory-maintenance systems with condition monitoring," European Journal of Operational Research, Elsevier, vol. 310(2), pages 698-711.
    3. Dursun, İpek & Akcay, Alp & van Houtum, Geert-Jan, 2024. "How good must failure predictions be to make local spare parts stock superfluous?," International Journal of Production Economics, Elsevier, vol. 267(C).
    4. Rippe, Christoph & Kiesmüller, Gudrun P., 2023. "The repair kit problem with imperfect advance demand information," European Journal of Operational Research, Elsevier, vol. 304(2), pages 558-576.
    5. Zhu, Sha & Jaarsveld, Willem van & Dekker, Rommert, 2020. "Spare parts inventory control based on maintenance planning," Reliability Engineering and System Safety, Elsevier, vol. 193(C).
    6. Van der Auweraer, Sarah & Zhu, Sha & Boute, Robert N., 2021. "The value of installed base information for spare part inventory control," International Journal of Production Economics, Elsevier, vol. 239(C).
    7. Jana Ralfs & Gudrun P. Kiesmüller, 2022. "Inventory management with advance demand information and flexible shipment consolidation," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(4), pages 1009-1044, December.
    8. Lamghari-Idrissi, Douniel & Basten, Rob & van Houtum, Geert-Jan, 2020. "Spare parts inventory control under a fixed-term contract with a long-down constraint," International Journal of Production Economics, Elsevier, vol. 219(C), pages 123-137.
    9. Douniel Lamghari-Idrissi & Roy van Hugten & Geert-Jan van Houtum & Rob Basten, 2022. "Increasing Chip Availability Through a New After-Sales Service Supply Concept at ASML," Interfaces, INFORMS, vol. 52(5), pages 460-470, September.
    10. Sun, Mingyao & Ng, Chi To & Wu, Feng & Cheng, T.C.E., 2022. "Optimization of after-sales services with spare parts consumption and repairman travel," International Journal of Production Economics, Elsevier, vol. 244(C).
    11. Topan, E. & Eruguz, A.S. & Ma, W. & van der Heijden, M.C. & Dekker, R., 2020. "A review of operational spare parts service logistics in service control towers," European Journal of Operational Research, Elsevier, vol. 282(2), pages 401-414.

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