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Using imperfect advance demand information in ordering and rationing decisions

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  • Tan, Tarkan
  • Güllü, Refik
  • Erkip, Nesim

Abstract

In this paper, we consider an inventory problem with two demand classes having different priorities. The appropriate policy of rationing the available stock, i.e. reserving some stock for meeting prospective future demand of preferred customers at the expense of deliberately losing some of the currently materialized demand of lower demand class(es), relies on the estimation of the future demand. Utilizing current signals on future demand, which we refer to as imperfect advance demand information (ADI), decreases uncertainty on future demand and may help to make better decisions on when to start rejecting lower class demand. We develop a model that incorporates imperfect ADI with inventory ordering (replenishment) decision and rationing available stock. In a two-period setting, we show some structural properties, solve the rationing problem, and propose solution methods based on Monte Carlo simulation for the ordering problem. We conduct numerical tests to measure the impact of system parameters on the expected value of imperfect ADI, and provide useful managerial insights.

Suggested Citation

  • Tan, Tarkan & Güllü, Refik & Erkip, Nesim, 2009. "Using imperfect advance demand information in ordering and rationing decisions," International Journal of Production Economics, Elsevier, vol. 121(2), pages 665-677, October.
    • Handle: RePEc:eee:proeco:v:121:y:2009:i:2:p:665-677
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    3. Quan-Lin Li & Yi-Meng Li & Jing-Yu Ma & Heng-Li Liu, 2023. "A complete algebraic solution to the optimal dynamic rationing policy in the stock-rationing queue with two demand classes," Journal of Combinatorial Optimization, Springer, vol. 45(3), pages 1-54, April.
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    7. Feng, Haofang & Zhang, Sheng Hao & Zhang, Yong, 2023. "Managing production-inventory-maintenance systems with condition monitoring," European Journal of Operational Research, Elsevier, vol. 310(2), pages 698-711.
    8. Dursun, İpek & Akcay, Alp & van Houtum, Geert-Jan, 2024. "How good must failure predictions be to make local spare parts stock superfluous?," International Journal of Production Economics, Elsevier, vol. 267(C).
    9. Jana Ralfs & Gudrun P. Kiesmüller, 2022. "Inventory management with advance demand information and flexible shipment consolidation," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(4), pages 1009-1044, December.
    10. Pinto, Roberto, 2012. "Stock rationing under service level constraints in a vertically integrated distribution system," International Journal of Production Economics, Elsevier, vol. 136(1), pages 231-240.
    11. Cheaitou, Ali & van Delft, Christian & Jemai, Zied & Dallery, Yves, 2014. "Optimal policy structure characterization for a two-period dual-sourcing inventory control model with forecast updating," International Journal of Production Economics, Elsevier, vol. 157(C), pages 238-249.
    12. Hung, Yi-Feng & Lee, Tzu-Yuan, 2010. "Capacity rationing decision procedures with order profit as a continuous random variable," International Journal of Production Economics, Elsevier, vol. 125(1), pages 125-136, May.
    13. Rippe, Christoph & Kiesmüller, Gudrun P., 2023. "The repair kit problem with imperfect advance demand information," European Journal of Operational Research, Elsevier, vol. 304(2), pages 558-576.
    14. Kefeng Xu & Yang Dong & Yu Xia, 2014. "‘Too Little’ or ‘Too Late’: The Timing of Supply Chain Demand Collaboration," Working Papers 0203mss, College of Business, University of Texas at San Antonio.
    15. Alfieri, Arianna & Pastore, Erica & Zotteri, Giulio, 2017. "Dynamic inventory rationing: How to allocate stock according to managerial priorities. An empirical study," International Journal of Production Economics, Elsevier, vol. 189(C), pages 14-29.
    16. Choi, Tsan-Ming & Sethi, Suresh, 2010. "Innovative quick response programs: A review," International Journal of Production Economics, Elsevier, vol. 127(1), pages 1-12, September.
    17. Mohammed Hichame Benbitour & Evren Sahin, 2015. "Evaluation of the Impact of Uncertain Advance Demand Information on Production/Inventory Systems," Post-Print hal-01199290, HAL.
    18. Mohammad Najjartabar Bisheh & G. Reza Nasiri & Esmaeil Esmaeili & Hamid Davoudpour & Shing I. Chang, 2022. "A new supply chain distribution network design for two classes of customers using transfer recurrent neural network," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(5), pages 2604-2618, October.
    19. Fernando Bernstein & Gregory A. DeCroix, 2015. "Advance Demand Information in a Multiproduct System," Manufacturing & Service Operations Management, INFORMS, vol. 17(1), pages 52-65, February.

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