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Service Constrained (s, S) Inventory Systems with Priority Demand Classes and Lost Sales

Author

Listed:
  • Morris A. Cohen

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Paul R. Kleindorfer

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Hau L. Lee

    (Department of Industrial Engineering and Engineering Management, Stanford University, Stanford, California 94305)

Abstract

This paper presents a model of an (s, S) inventory system in which there are two priority classes of customers. The model treats excess demands as lost sales and can accommodate an arbitrary deterministic lead time. After considering the associated Markov-chain model, an approximate, renewal-based model is derived. This approximation is used to develop a greedy heuristic which minimizes expected costs subject to a fill-rate service constraint. The paper concludes with the results of an extensive numerical test of both the accuracy of the approximation and the performance of the heuristic with respect to the true optimal solution. Results indicate good performance which deteriorates as the fill rate requirement and lead time increase.

Suggested Citation

  • Morris A. Cohen & Paul R. Kleindorfer & Hau L. Lee, 1988. "Service Constrained (s, S) Inventory Systems with Priority Demand Classes and Lost Sales," Management Science, INFORMS, vol. 34(4), pages 482-499, April.
    • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:4:p:482-499
    DOI: 10.1287/mnsc.34.4.482
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