IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v159y2015icp254-264.html
   My bibliography  Save this article

Optimal inventory management with supply backordering

Author

Listed:
  • Jakšič, M.
  • Fransoo, J.C.

Abstract

We study the inventory control problem of a retailer working under stochastic demand and stochastic limited supply. We assume that the unfilled part of the retailer׳s order is fully backordered at the supplier and replenished with certainty in the following period. As it may not always be optimal for the retailer to replenish the backordered supply, we also consider the setting in which the retailer has a right to either partially or fully cancel these backorders, if desired. We show the optimality of the base-stock policy and characterize the threshold inventory position above which it is optimal to fully cancel the replenishment of the backordered supply. We carry out a numerical analysis to quantify the benefits of supply backordering and the value of the cancelation option, and reveal several managerial insights.

Suggested Citation

  • Jakšič, M. & Fransoo, J.C., 2015. "Optimal inventory management with supply backordering," International Journal of Production Economics, Elsevier, vol. 159(C), pages 254-264.
    • Handle: RePEc:eee:proeco:v:159:y:2015:i:c:p:254-264
    DOI: 10.1016/j.ijpe.2014.09.015
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092552731400293X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2014.09.015?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. Awi Federgruen & Nan Yang, 2009. "Optimal Supply Diversification Under General Supply Risks," Operations Research, INFORMS, vol. 57(6), pages 1451-1468, December.
    2. Ravi Anupindi & Ram Akella, 1993. "Diversification Under Supply Uncertainty," Management Science, INFORMS, vol. 39(8), pages 944-963, August.
    3. Maqbool Dada & Nicholas C. Petruzzi & Leroy B. Schwarz, 2007. "A Newsvendor's Procurement Problem when Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 9-32, August.
    4. Iida, Tetsuo, 2002. "A non-stationary periodic review production-inventory model with uncertain production capacity and uncertain demand," European Journal of Operational Research, Elsevier, vol. 140(3), pages 670-683, August.
    5. Do Ba Khang & Okitsugu Fujiwara, 2000. "Optimality of Myopic Ordering Policies for Inventory Model with Stochastic Supply," Operations Research, INFORMS, vol. 48(1), pages 181-184, February.
    6. Yoichiro Fukuda, 1964. "Optimal Policies for the Inventory Problem with Negotiable Leadtime," Management Science, INFORMS, vol. 10(4), pages 690-708, July.
    7. Kamran Moinzadeh & Hau L. Lee, 1989. "Approximate Order Quantities and Reorder Points for Inventory Systems Where Orders Arrive in Two Shipments," Operations Research, INFORMS, vol. 37(2), pages 277-287, April.
    8. Gullu, Refik & Onol, Ebru & Erkip, Nesim, 1999. "Analysis of an inventory system under supply uncertainty," International Journal of Production Economics, Elsevier, vol. 59(1-3), pages 377-385, March.
    9. Frank W. Ciarallo & Ramakrishna Akella & Thomas E. Morton, 1994. "A Periodic Review, Production Planning Model with Uncertain Capacity and Uncertain Demand---Optimality of Extended Myopic Policies," Management Science, INFORMS, vol. 40(3), pages 320-332, March.
    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. Jakšič, M. & Fransoo, J.C., 2018. "Dual sourcing in the age of near-shoring: Trading off stochastic capacity limitations and long lead times," European Journal of Operational Research, Elsevier, vol. 267(1), pages 150-161.
    2. Iida, Tetsuo, 2015. "Benefits of leadtime information and of its combination with demand forecast information," International Journal of Production Economics, Elsevier, vol. 163(C), pages 146-156.
    3. Weiwei Li & Lisheng Weng & Kaixu Zhao & Sidong Zhao & Ping Zhang, 2021. "Research on the Evaluation of Real Estate Inventory Management in China," Land, MDPI, vol. 10(12), pages 1-29, November.
    4. Y. Boulaksil & J. C. Fransoo & T. Tan, 2017. "Capacity reservation and utilization for a manufacturer with uncertain capacity and demand," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(3), pages 689-709, July.
    5. Mou, Shandong & Robb, David J. & DeHoratius, Nicole, 2018. "Retail store operations: Literature review and research directions," European Journal of Operational Research, Elsevier, vol. 265(2), pages 399-422.
    6. Xu, Xinsheng & Wang, Hongwei & Dang, Chuangyin & Ji, Ping, 2017. "The loss-averse newsvendor model with backordering," International Journal of Production Economics, Elsevier, vol. 188(C), pages 1-10.
    7. Serel, Doğan A., 2017. "A single-period stocking and pricing problem involving stochastic emergency supply," International Journal of Production Economics, Elsevier, vol. 185(C), pages 180-195.
    8. Luis A. San-José & Joaquín Sicilia & Manuel González-De-la-Rosa & Jaime Febles-Acosta, 2020. "Best pricing and optimal policy for an inventory system under time-and-price-dependent demand and backordering," Annals of Operations Research, Springer, vol. 286(1), pages 351-369, March.
    9. Luis A. San-José & Joaquín Sicilia & Manuel González-de-la-Rosa & Jaime Febles-Acosta, 2021. "Optimal Price and Lot Size for an EOQ Model with Full Backordering under Power Price and Time Dependent Demand," Mathematics, MDPI, vol. 9(16), pages 1-16, August.

    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. Qi Feng & J. George Shanthikumar, 2018. "Supply and Demand Functions in Inventory Models," Operations Research, INFORMS, vol. 66(1), pages 77-91, 1-2.
    2. Wen Chen & Burcu Tan, 2022. "Dynamic procurement from multiple suppliers with random capacities," Annals of Operations Research, Springer, vol. 317(2), pages 509-536, October.
    3. Tao Lu & Jan C. Fransoo & Chung-Yee Lee, 2017. "Carrier Portfolio Management for Shipping Seasonal Products," Operations Research, INFORMS, vol. 65(5), pages 1250-1266, October.
    4. Jakšič, M. & Fransoo, J.C., 2018. "Dual sourcing in the age of near-shoring: Trading off stochastic capacity limitations and long lead times," European Journal of Operational Research, Elsevier, vol. 267(1), pages 150-161.
    5. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    6. Xu, He & Zuo, Xiaolu & Liu, Zhixue, 2015. "Configuration of flexibility strategies under supply uncertainty," Omega, Elsevier, vol. 51(C), pages 71-82.
    7. Wang, Yimin & Xiao, Yixuan & Yang, Nan, 2014. "Improving reliability of a shared supplier with competition and spillovers," European Journal of Operational Research, Elsevier, vol. 236(2), pages 499-510.
    8. Wen Chen & Ying He, 2022. "Dynamic pricing and inventory control with delivery flexibility," Annals of Operations Research, Springer, vol. 317(2), pages 481-508, October.
    9. Zhu, Stuart X., 2015. "Dynamic replenishment from two sources with different yields, costs, and leadtimes," International Journal of Production Economics, Elsevier, vol. 165(C), pages 79-89.
    10. Brian Tomlin, 2006. "On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks," Management Science, INFORMS, vol. 52(5), pages 639-657, May.
    11. Mohammadivojdan, Roshanak & Merzifonluoglu, Yasemin & Geunes, Joseph, 2022. "Procurement portfolio planning for a newsvendor with supplier delivery uncertainty," European Journal of Operational Research, Elsevier, vol. 297(3), pages 917-929.
    12. Lingxiu Dong & Guang Xiao & Nan Yang, 2023. "Supply diversification under random yield: The impact of price postponement," Production and Operations Management, Production and Operations Management Society, vol. 32(4), pages 1112-1132, April.
    13. Pan, Wenting & So, Kut C. & Xiao, Guang, 2022. "Benefits of backup sourcing for components in assembly systems under supply uncertainty," European Journal of Operational Research, Elsevier, vol. 302(1), pages 158-171.
    14. Yan, Xiaoming & Zhang, Minghui & Liu, Ke, 2010. "A note on coordination in decentralized assembly systems with uncertain component yields," European Journal of Operational Research, Elsevier, vol. 205(2), pages 469-478, September.
    15. Nathan Craig & Nicole DeHoratius & Ananth Raman, 2016. "The Impact of Supplier Inventory Service Level on Retailer Demand," Manufacturing & Service Operations Management, INFORMS, vol. 18(4), pages 461-474, October.
    16. Y. Boulaksil & J. C. Fransoo & T. Tan, 2017. "Capacity reservation and utilization for a manufacturer with uncertain capacity and demand," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(3), pages 689-709, July.
    17. Long He & Ying Rong & Zuo‐Jun Max Shen, 2020. "Product Sourcing and Distribution Strategies under Supply Disruption and Recall Risks," Production and Operations Management, Production and Operations Management Society, vol. 29(1), pages 9-23, January.
    18. Cheong, Taesu & Song, Sang Hwa, 2013. "The value of information on supply risk under random yields," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 27-38.
    19. Lee, Chungseung & Park, Kun Soo, 2016. "Inventory and transshipment decisions in the rationing game under capacity uncertainty," Omega, Elsevier, vol. 65(C), pages 82-97.
    20. Serel, Doğan A., 2017. "A single-period stocking and pricing problem involving stochastic emergency supply," International Journal of Production Economics, Elsevier, vol. 185(C), pages 180-195.

    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:proeco:v:159:y:2015:i:c:p:254-264. 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/locate/ijpe .

    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.