IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v81y2018icp48-56.html
   My bibliography  Save this article

Base-stock policies with reservations

Author

Listed:
  • Van Foreest, Nicky D.
  • Teunter, Ruud H.
  • Syntetos, Aris A.

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 sub-optimality 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.

Suggested Citation

  • Van Foreest, Nicky D. & Teunter, Ruud H. & Syntetos, Aris A., 2018. "Base-stock policies with reservations," Omega, Elsevier, vol. 81(C), pages 48-56.
    • Handle: RePEc:eee:jomega:v:81:y:2018:i:c:p:48-56
    DOI: 10.1016/j.omega.2017.09.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305048316309586
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.omega.2017.09.008?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. Chen, Fangruo & Zheng, Yu-Sheng, 1993. "Inventory models with general backorder costs," European Journal of Operational Research, Elsevier, vol. 65(2), pages 175-186, March.
    2. Stephen C. Graves & Sean P. Willems, 2000. "Optimizing Strategic Safety Stock Placement in Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 2(1), pages 68-83, June.
    3. Andrew J. Clark & Herbert Scarf, 2004. "Optimal Policies for a Multi-Echelon Inventory Problem," Management Science, INFORMS, vol. 50(12_supple), pages 1782-1790, December.
    4. Awi Federgruen & Paul Zipkin, 1984. "Approximations of Dynamic, Multilocation Production and Inventory Problems," Management Science, INFORMS, vol. 30(1), pages 69-84, January.
    5. Johan Marklund, 2006. "Controlling Inventories in Divergent Supply Chains with Advance-Order Information," Operations Research, INFORMS, vol. 54(5), pages 988-1010, October.
    6. Lingxiu Dong & Nils Rudi, 2004. "Who Benefits from Transshipment? Exogenous vs. Endogenous Wholesale Prices," Management Science, INFORMS, vol. 50(5), pages 645-657, May.
    7. Kaj Rosling, 2002. "Inventory Cost Rate Functions with Nonlinear Shortage Costs," Operations Research, INFORMS, vol. 50(6), pages 1007-1017, December.
    8. Kaj Rosling, 1989. "Optimal Inventory Policies for Assembly Systems Under Random Demands," Operations Research, INFORMS, vol. 37(4), pages 565-579, August.
    9. Ronald W. Wolff, 1982. "Poisson Arrivals See Time Averages," Operations Research, INFORMS, vol. 30(2), pages 223-231, April.
    10. Teunter, Ruud H. & Klein Haneveld, Willem K., 2008. "Dynamic inventory rationing strategies for inventory systems with two demand classes, Poisson demand and backordering," European Journal of Operational Research, Elsevier, vol. 190(1), pages 156-178, October.
    11. Xuanming Su & Fuqiang Zhang, 2009. "On the Value of Commitment and Availability Guarantees When Selling to Strategic Consumers," Management Science, INFORMS, vol. 55(5), pages 713-726, May.
    12. Francis de Véricourt & Fikri Karaesmen & Yves Dallery, 2001. "Assessing the Benefits of Different Stock-Allocation Policies for a Make-to-Stock Production System," Manufacturing & Service Operations Management, INFORMS, vol. 3(2), pages 105-121, December.
    13. Jean-Philippe Gayon & Saif Benjaafar & Francis de Véricourt, 2009. "Using Imperfect Advance Demand Information in Production-Inventory Systems with Multiple Customer Classes," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 128-143, July.
    14. Hemant K. Bhargava & Daewon Sun & Susan H. Xu, 2006. "Stockout Compensation: Joint Inventory and Price Optimization in Electronic Retailing," INFORMS Journal on Computing, INFORMS, vol. 18(2), pages 255-266, May.
    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. Mahdavi, Mojtaba & Olsen, Tava Lennon, 2021. "The dual-serving problem: What is the right choice of inventory strategy?," Omega, Elsevier, vol. 103(C).
    2. Qin, Xuwei & Jiang, Zhong-Zhong & Sun, Minghe & Tang, Liang & Liu, Xiaoran, 2021. "Repairable spare parts provisioning for multiregional expanding fleets of equipment under performance-based contracting," Omega, Elsevier, vol. 102(C).

    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. Barnes-Schuster, Dawn & Bassok, Yehuda & Anupindi, Ravi, 2006. "Optimizing delivery lead time/inventory placement in a two-stage production/distribution system," European Journal of Operational Research, Elsevier, vol. 174(3), pages 1664-1684, November.
    2. Alexandar Angelus & Özalp Özer, 2016. "Knowledge You Can Act on: Optimal Policies for Assembly Systems with Expediting and Advance Demand Information," Operations Research, INFORMS, vol. 64(6), pages 1338-1371, December.
    3. Xiuli Chao & Sean X. Zhou, 2009. "Optimal Policy for a Multiechelon Inventory System with Batch Ordering and Fixed Replenishment Intervals," Operations Research, INFORMS, vol. 57(2), pages 377-390, April.
    4. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    5. Awi Federgruen & Min Wang, 2015. "Inventory Models with Shelf-Age and Delay-Dependent Inventory Costs," Operations Research, INFORMS, vol. 63(3), pages 701-715, June.
    6. Diks, E. B. & de Kok, A. G., 1998. "Optimal control of a divergent multi-echelon inventory system," European Journal of Operational Research, Elsevier, vol. 111(1), pages 75-97, November.
    7. Du, Bisheng & Larsen, Christian, 2017. "Reservation policies of advance orders in the presence of multiple demand classes," European Journal of Operational Research, Elsevier, vol. 256(2), pages 430-438.
    8. Howard, Christian & Marklund, Johan, 2011. "Evaluation of stock allocation policies in a divergent inventory system with shipment consolidation," European Journal of Operational Research, Elsevier, vol. 211(2), pages 298-309, June.
    9. Fangruo Chen, 2000. "Optimal Policies for Multi-Echelon Inventory Problems with Batch Ordering," Operations Research, INFORMS, vol. 48(3), pages 376-389, June.
    10. Felix Papier & Ulrich W. Thonemann, 2010. "Capacity Rationing in Stochastic Rental Systems with Advance Demand Information," Operations Research, INFORMS, vol. 58(2), pages 274-288, April.
    11. Ramesh Bollapragada & Uday S. Rao & Jun Zhang, 2004. "Managing Inventory and Supply Performance in Assembly Systems with Random Supply Capacity and Demand," Management Science, INFORMS, vol. 50(12), pages 1729-1743, December.
    12. Tan Wang & L. Jeff Hong, 2023. "Large-Scale Inventory Optimization: A Recurrent Neural Networks–Inspired Simulation Approach," INFORMS Journal on Computing, INFORMS, vol. 35(1), pages 196-215, January.
    13. Albrecht, Martin, 2014. "Determining near optimal base-stock levels in two-stage general inventory systems," European Journal of Operational Research, Elsevier, vol. 232(2), pages 342-349.
    14. Yanyi Xu & Arnab Bisi & Maqbool Dada, 2011. "A Periodic-Review Base-Stock Inventory System with Sales Rejection," Operations Research, INFORMS, vol. 59(3), pages 742-753, June.
    15. Chaithanya Bandi & Eojin Han & Omid Nohadani, 2019. "Sustainable Inventory with Robust Periodic-Affine Policies and Application to Medical Supply Chains," Management Science, INFORMS, vol. 65(10), pages 4636-4655, October.
    16. Lucy Gongtao Chen & Srinagesh Gavirneni, 2010. "Using Scheduled Ordering to Improve the Performance of Distribution Supply Chains," Management Science, INFORMS, vol. 56(9), pages 1615-1632, September.
    17. David G. Lawson & Evan L. Porteus, 2000. "Multistage Inventory Management with Expediting," Operations Research, INFORMS, vol. 48(6), pages 878-893, December.
    18. Bao, Lina & Liu, Zhiying & Yu, Yimin & Zhang, Wei, 2018. "On the decomposition property for a dynamic inventory rationing problem with multiple demand classes and backorder," European Journal of Operational Research, Elsevier, vol. 265(1), pages 99-106.
    19. Sven Axsäter & Johan Marklund & Edward A. Silver, 2002. "Heuristic Methods for Centralized Control of One-Warehouse, N-Retailer Inventory Systems," Manufacturing & Service Operations Management, INFORMS, vol. 4(1), pages 75-97, October.
    20. Verrijdt, J. H. C. M. & de Kok, A. G., 1996. "Distribution planning for a divergent depotless two-echelon network under service constraints," European Journal of Operational Research, Elsevier, vol. 89(2), pages 341-354, March.

    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:81:y:2018:i:c:p:48-56. 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.