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An Inventory Model of Immediate and Delayed Delivery

Author

Listed:
  • Kamran Moinzadeh

    (School of Business, University of Washington, Seattle, Washington 98195)

  • Charles Ingene

    (School of Business, University of Washington, Seattle, Washington 98195)

Abstract

This paper considers the long run, profit maximizing strategy of a distributor that holds a good (good 1) in inventory for immediate delivery and that offers a second good (good 2) for delayed delivery. When the two goods are substitutes, an out-of-stock situation for good 1 will cause some consumers ("walkers") to seek the good elsewhere, other consumers ("waiters") to accept a raincheck for later delivery of good 1, and others still ("switchers") to place an order for good 2. It is shown that a profit maximizing strategy may entail setting a price for the delayed delivery item so as to encourage switching behavior. The rationale is that the distributor can hold a smaller inventory, thereby incurring lower holding costs, because out-of-stock situations are less costly than they would be without some consumers being willing to switch.

Suggested Citation

  • Kamran Moinzadeh & Charles Ingene, 1993. "An Inventory Model of Immediate and Delayed Delivery," Management Science, INFORMS, vol. 39(5), pages 536-548, May.
    • Handle: RePEc:inm:ormnsc:v:39:y:1993:i:5:p:536-548
    DOI: 10.1287/mnsc.39.5.536
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    Citations

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    Cited by:

    1. Ravi Anupindi & Maqbool Dada & Sachin Gupta, 1998. "Estimation of Consumer Demand with Stock-Out Based Substitution: An Application to Vending Machine Products," Marketing Science, INFORMS, vol. 17(4), pages 406-423.
    2. Narendra Agrawal & Stephen A. Smith, 2003. "Optimal retail assortments for substitutable items purchased in sets," Naval Research Logistics (NRL), John Wiley & Sons, vol. 50(7), pages 793-822, October.
    3. Stephen A. Smith & Narendra Agrawal, 2000. "Management of Multi-Item Retail Inventory Systems with Demand Substitution," Operations Research, INFORMS, vol. 48(1), pages 50-64, February.
    4. Ketzenberg, Michael & Metters, Richard & Vargas, Vicente, 2002. "Quantifying the benefits of breaking bulk in retail operations," International Journal of Production Economics, Elsevier, vol. 80(3), pages 249-263, December.

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