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Minimizing Customer Line Items Backordered in Inventory Control

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  • Warren H. Hausman

    (Graduate School of Business and Public Administration, Cornell University)

Abstract

This paper considers the theory and application of an alternative measure of stock-out cost in inventory control. Instead of recording the number of units of a product which are backordered, in certain situations it is appropriate to focus on the number or percentage of customer line items (requests for a particular item) which are backordered. By combining an approximate backorder cost per customer line item backordered with the usual ordering and carrying costs, an approximately optimal reorder point (or safety stock) formula is derived. The formula is applied to a stratified sample of 500 products from an actual inventory system, and an estimated 13% reduction in customer line items backordered is obtained with no increase in total inventory investment.

Suggested Citation

  • Warren H. Hausman, 1969. "Minimizing Customer Line Items Backordered in Inventory Control," Management Science, INFORMS, vol. 15(12), pages 628-634, August.
    • Handle: RePEc:inm:ormnsc:v:15:y:1969:i:12:p:b628-b634
    DOI: 10.1287/mnsc.15.12.B628
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    Cited by:

    1. Jing-Sheng Song, 2002. "Order-Based Backorders and Their Implications in Multi-Item Inventory Systems," Management Science, INFORMS, vol. 48(4), pages 499-516, April.
    2. Yingdong Lu, 2007. "Estimation of average backorders for an assemble‐to‐order system with random batch demands through extreme statistics," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(1), pages 33-45, February.
    3. Larsen, C. & Thorstenson, A., 2014. "The order and volume fill rates in inventory control systems," International Journal of Production Economics, Elsevier, vol. 147(PA), pages 13-19.

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