Base-stock policies with reservations

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6 Citations (Scopus)

Abstract

All intensively studied and widely applied inventory control policies satisfy demand in accordance with the First-Come-First-Served (FCFS) rule, whether this demand is in backorder or not. Interestingly, this rule is sub-optimal when the fill-rate is constrained or when the backorder cost structure includes fixed costs per backorder and costs per backorder per unit time. In this paper we study the degree of suboptimality of the FCFS rule for inventory systems controlled by the well-known base-stock policy. As an alternative to the FCFS rule, we propose and analyze a class of generalized base-stock policies that reserve some maximum number of items in stock for future demands, even if backorders exist. Our analytic results and numerical investigations show that such alternative stock reservation policies are indeed very simple and considerably improve either the fillrate or reduce the total cost, without having much effect on the backorder level. (C) 2017 Elsevier Ltd. All rights reserved.

Original languageEnglish
Pages (from-to)48-56
Number of pages9
JournalOMEGA-International Journal of Management Science
Volume81
DOIs
Publication statusPublished - Dec-2018

Keywords

  • Inventory Theory and Control
  • Base-stock models
  • Stock reservation policies
  • INVENTORY SYSTEMS
  • INFORMATION
  • DEMAND
  • COSTS

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