IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v113y2022ics0305048322001190.html
   My bibliography  Save this article

Inventory control with demand substitution: new insights from a two-product Economic Order Quantity analysis

Author

Listed:
  • Teunter, Ruud H.
  • Kuipers, Stefan

Abstract

We study optimal inventory control of two products with demand substitution, that is, where customers switch to the other product if their first choice is not on hand. Going back to the basics, we present a stylized Economic Order Quantity type model with two substitute products having the same constant demand rate and cost structure. Different from the literature, we do not presume that both products must be ordered at the same time. This leads to new insights into when no, partial, and full substitution are optimal. Most interestingly, it turns out that this symmetric problem can have an asymmetric solution. If partial substitution is optimal, then this is always achieved by one-way substitution and never by two-way substitution.

Suggested Citation

  • Teunter, Ruud H. & Kuipers, Stefan, 2022. "Inventory control with demand substitution: new insights from a two-product Economic Order Quantity analysis," Omega, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:jomega:v:113:y:2022:i:c:s0305048322001190
    DOI: 10.1016/j.omega.2022.102712
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305048322001190
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.omega.2022.102712?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. H Gurnani & Z Drezner, 2000. "Deterministic hierarchical substitution inventory models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 51(1), pages 129-133, January.
    2. Huang, Di & Zhou, Hong & Zhao, Qiu-Hong, 2011. "A competitive multiple-product newsboy problem with partial product substitution," Omega, Elsevier, vol. 39(3), pages 302-312, June.
    3. Gupta, Varun & Ivanov, Dmitry & Choi, Tsan-Ming, 2021. "Competitive pricing of substitute products under supply disruption," Omega, Elsevier, vol. 101(C).
    4. Freeman, Nickolas K. & Narayanan, Arunachalam & Keskin, Burcu B., 2021. "Optimal use of downward substitution in a manufacturing operation subject to uncertainty," Omega, Elsevier, vol. 103(C).
    5. Serguei Netessine & Nils Rudi, 2003. "Centralized and Competitive Inventory Models with Demand Substitution," Operations Research, INFORMS, vol. 51(2), pages 329-335, April.
    6. Hsieh, Chung-Chi & Lai, Hsing-Hua, 2020. "Pricing and ordering decisions in a supply chain with downward substitution and imperfect process yield," Omega, Elsevier, vol. 95(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ghiami, Yousef, 2023. "An analysis on production and inventory models with discounted cash-flows," Omega, Elsevier, vol. 117(C).
    2. Dai, Bo & Chen, Haoxun & Li, Yuan & Zhang, Yidong & Wang, Xiaoqing & Deng, Yuming, 2023. "An alternating direction method of multipliers for optimizing (s, S) policies in a distribution system with joint replenishment volume constraints," Omega, Elsevier, vol. 116(C).
    3. Palanivel Muthusamy & Venkadesh Murugesan & Vetriselvi Selvaraj, 2024. "Optimal production–inventory decision with shortage for deterioration item and effect of carbon emission policy combination with green technology," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(9), pages 23701-23766, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dong, Binwei & Ren, Yufei & McIntosh, Christopher, 2023. "A co-opetitive newsvendor model with product substitution and a wholesale price contract," European Journal of Operational Research, Elsevier, vol. 311(2), pages 502-514.
    2. Shin, Hojung & Park, Soohoon & Lee, Euncheol & Benton, W.C., 2015. "A classification of the literature on the planning of substitutable products," European Journal of Operational Research, Elsevier, vol. 246(3), pages 686-699.
    3. Bai, Qingguo & Chen, Jiguang & Xu, Jianteng, 2023. "Energy conservation investment and supply chain structure under cap-and-trade regulation for a green product," Omega, Elsevier, vol. 119(C).
    4. Rozhkov, Maxim & Ivanov, Dmitry & Blackhurst, Jennifer & Nair, Anand, 2022. "Adapting supply chain operations in anticipation of and during the COVID-19 pandemic," Omega, Elsevier, vol. 110(C).
    5. Hu, Benyong & Xu, Dong & Meng, Chao, 2017. "Inconsistency of a retailer's optimal policies and channel performance under revenue sharing contracts," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 53-65.
    6. Liu, Wei & Song, Shiji & Wu, Cheng, 2013. "Impact of loss aversion on the newsvendor game with product substitution," International Journal of Production Economics, Elsevier, vol. 141(1), pages 352-359.
    7. He, Shuang & Zhang, Jian & Zhang, Juliang & Cheng, T.C.E., 2022. "Production/inventory competition between firms with fixed-proportions co-production systems," European Journal of Operational Research, Elsevier, vol. 299(2), pages 497-509.
    8. Aldrighetti, Riccardo & Battini, Daria & Ivanov, Dmitry, 2023. "Efficient resilience portfolio design in the supply chain with consideration of preparedness and recovery investments," Omega, Elsevier, vol. 117(C).
    9. Niu, Baozhuang & Bao, Jinxiao & Cao, Bin, 2022. "Retailer's make-or-buy decision for remanufactured products under in-house yield uncertainty," Omega, Elsevier, vol. 110(C).
    10. Zhang, Ren-Qian & Yi, Meng & Wang, Qi-Qi & Xiang, Chen, 2018. "Polynomial algorithm of inventory model with complete backordering and correlated demand caused by cross-selling," International Journal of Production Economics, Elsevier, vol. 199(C), pages 193-198.
    11. Zhang, Jie & Xie, Weijun & Sarin, Subhash C., 2021. "Robust multi-product newsvendor model with uncertain demand and substitution," European Journal of Operational Research, Elsevier, vol. 293(1), pages 190-202.
    12. Zhang, Ren-Qian & Zhang, Lan-Kang & Zhou, Wen-Hui & Saigal, Romesh & Wang, Hui-Wen, 2014. "The multi-item newsvendor model with cross-selling and the solution when demand is jointly normally distributed," European Journal of Operational Research, Elsevier, vol. 236(1), pages 147-159.
    13. Silbermayr, Lena, 2020. "A review of non-cooperative newsvendor games with horizontal inventory interactions," Omega, Elsevier, vol. 92(C).
    14. Li, Guo & Liu, Mengqi & Zheng, Hong, 2022. "Subsidization or Diversification? Mitigating Supply Disruption with Manufacturer Information Sharing," Omega, Elsevier, vol. 112(C).
    15. Jian Zhang & Shuang He & Juliang Zhang & T. C. Edwin Cheng, 2020. "Purchase and retrieval competition for seasonal produce," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(3), pages 161-184, April.
    16. Chunmei Li & Tianjian Yang & Zijing Bian, 2023. "Does Environmental Education Always Contribute to Remanufacturing Supply Chain Development?," IJERPH, MDPI, vol. 20(6), pages 1-18, March.
    17. Yancong Zhou & Junqing Sun, 2013. "Inventory Decisions in a Product-Updated System with Component Substitution and Product Substitution," Discrete Dynamics in Nature and Society, Hindawi, vol. 2013, pages 1-9, March.
    18. Choi, Tsan-Ming & Shi, Xiutian, 2022. "Reducing supply risks by supply guarantee deposit payments in the fashion industry in the “new normal after COVID-19”," Omega, Elsevier, vol. 109(C).
    19. Yucheng Xin & Tijun Fan & Yang Song & Wenyue Zheng, 2024. "The impact of live streaming on competitive e-commerce," Electronic Commerce Research, Springer, vol. 24(2), pages 1215-1234, June.
    20. Su, Ping & Tian, Zhongjun & Wang, Haiyan, 2012. "On service degrade at a discount: Capacity, demand pooling, and optimal discounting," Omega, Elsevier, vol. 40(3), pages 358-367.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:113:y:2022:i:c:s0305048322001190. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.