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The impact of inventory information distortion due to customer order cancellations

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  • Ki Ling Cheung
  • Alex X. Zhang

Abstract

In this paper we study the impact of cancellations of customer orders on an inventory system. We develop a periodic review (s, S) inventory model with Poisson demands, deterministic demand leadtimes and supply leadtimes. When no set up cost is present for replenishment, the behavior of the system cost can be studied analytically. For the case with a fixed set up cost, we derive the operating characteristics of the model via an embedded Markov chain analysis. Based on this, we formulate the total cost function and suggest a two‐phase approach to optimization. Our model can be used to compute cancellation fees and to evaluate the impacts of various conditions of cancellation. We find that cancellations, as major sources of inventory information distortion, increase total system costs, and the magnitude of the cost impact depends on the probability of cancellation and the expected cancellation time. Other relevant lessons and insights are also discussed. © 1999 John Wiley & Sons, Inc. Naval Research Logistics 46: 213–231, 1999

Suggested Citation

  • Ki Ling Cheung & Alex X. Zhang, 1999. "The impact of inventory information distortion due to customer order cancellations," Naval Research Logistics (NRL), John Wiley & Sons, vol. 46(2), pages 213-231, March.
    • Handle: RePEc:wly:navres:v:46:y:1999:i:2:p:213-231
    DOI: 10.1002/(SICI)1520-6750(199903)46:23.0.CO;2-4
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    References listed on IDEAS

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    Cited by:

    1. A A Syntetos & N C Georgantzas & J E Boylan & B C Dangerfield, 2011. "Judgement and supply chain dynamics," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(6), pages 1138-1158, June.
    2. Zhang, Juzhi & Xu, Qingyun & He, Yi, 2018. "Omnichannel retail operations with consumer returns and order cancellation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 308-324.
    3. Son, Junghwa & Kang, Ji Hye & Jang, Sungha, 2019. "The effects of out-of-stock, return, and cancellation amounts on the order amounts of an online retailer," Journal of Retailing and Consumer Services, Elsevier, vol. 51(C), pages 421-427.

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