Sage Journals: Discover world-class research

Abstract

This paper investigates inventory‐rationing policies of interest to firms operating in a direct market channel. We model a single product with two demand classes, where one class requests a lower order fulfillment lead time but pays a higher price. Demand for each class follows a Poisson process. Inventory is fed by a production system with exponentially distributed build times. We study rationing policies in which the firm either blocks or backlogs orders for the lower priority customers when inventory drops below a certain level. We compare the performance of these rationing policies with a pure first‐come, first‐serve policy under various scenarios for customer response to delay: lost sales, backlog, and a combination of lost sales and backlog.

Keywords

DIRECT MARKET CHANNELS SUPPLY CHAIN MANAGEMENT MARKOV PROCESSES/CHAINS STOCHASTIC INVENTORY RATIONING MODELS

Get full access to this article

View all access options for this article.

References

Bitran

and Mondschein

(1995), “An Application of Yield Management to the Hotel Industry Considering Multiple Day Stays,” Operations Research, 43, 3, 427–443.

Beckmann

(1961), “An Inventory Model for Arbitrary Interval and Quantity Distributions of Demand,” Management Science, 8, 1, 35–57.

Buzacott

and Shanthikumar

(1993), Stochastic Models of Manufacturing Systems, Prentice Hall, Engle‐wood Cliffs, NJ.

Cachon

(1999), Competitive and Cooperative Inventory Management in a Two‐Echelon Supply Chain with Lost Sales, Working Paper, The Fuqua School of Business, Duke University, Durham, NC.

Chen

(2001), “Market Segmentation, Advanced Demand Information, and Supply Chain Performance,” Manufacturing and Service Operations Management, 3, 1, 53–67.

Cohen

Kleindorfer

and Lee

(1988), “Service Constrained (s, S) Inventory Systems with Priority Demand Classes and Lost Sales,” Management Science, 34, 4, 482–499.

Deshpande

Cohen

and Donohue

(2001), A Threshold Inventory Rationing Policy for Service Differentiated Demand Classes, Working Paper, The Krannert School of Management, Purdue University, W. Lafayette, IN.

Gross

and Harris

(1971), “On One‐For‐One Ordering Inventory Policies with State‐Dependent Leadtimes,” Operations Research, 19, 3, 735–760.

(2000), “Stock Rationing in an M/E_k/1 Make‐to‐Stock Queue,” Management Science, 46, 1, 77–87.

10.

(1997), “Inventory Rationing in a Make‐to‐Stock Production System with Several Demand Classes and Lost Sales,” Management Science, 43, 8, 1093–1103.

11.

Hadley

and Whitin

(1963), Analysis of Inventory Systems, Prentice‐Hall, Englewood Cliffs, NJ.

12.

Kaplan

(1969), “Stock Rationing,” Management Science, 15, 5, 260–267.

13.

Kleijn

and Dekker

(1998), “An Overview of Inventory Systems with Several Demand Classes,” in Econometric Institute Report 9838/A, Erasmus University, Rotterdam, The Netherlands.

14.

Matlab , (1996), MATLAB Reference Guide, The MathWorks, Inc., Natick, MA.

15.

Morse

(1958), Queues, Inventories and Maintenance: The Analysis of Operational Systems with Variable Demand and Supply, John Wiley and Sons, New York.

16.

Subramanian

Stidham

and Lautenbacher

(1999), “Airline Yield Management with Overbooking, Cancellations, and No‐Shows,” Transportation Science, 33, 2, 147–167.

17.

Topkis

(1968), “Optimal Ordering and Rationing Policies in a Nonstationary Dynamic Inventory Model with n Demand Classes,” Management Science, 15, 3, 160–176.

18.

Wang

Cohen

and Zheng

(2001), Differentiating Customer Service on the Basis of Delivery Lead‐Times, Working Paper, Weatherhead School of Management, Case Western University, OH.

19.

Warsing

(1999), An Analysis of Dynamic Postponement in a Multimodal Supply Chain, Working Paper, University of North Carolina, Chapel Hill, NC.

20.

Zinn

and Bowersox

(1988), “Planning Physical Distribution with the Principle of Postponement,” Journal of Business Logistics, 9, 2, 117–136.

INVENTORY RATIONING AND SHIPMENT FLEXIBILITY ALTERNATIVES FOR DIRECT MARKET FIRMS

Abstract

Keywords

Get full access to this article

References