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Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales

Author

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  • Albert Y. Ha

    (School of Management, Yale University, New Haven, Connecticut 06520)

Abstract

This paper considers the stock rationing problem of a single-item, make-to-stock production system with several demand classes and lost sales. For the case of Poisson demands and exponential production times, we show that the optimal policy can be characterized by a sequence of monotone stock rationing levels. For each demand class, there exists a stock rationing level at or below which it is optimal to start rejecting the demand of this class in anticipation of future arrival of higher priority demands. A simple queueing model is analyzed to compute the operating cost of a rationing policy. In a numerical study, we compare the optimal rationing policy with a first-come first-served policy to investigate the benefit of stock rationing under different operating conditions of the system.

Suggested Citation

  • Albert Y. Ha, 1997. "Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales," Management Science, INFORMS, vol. 43(8), pages 1093-1103, August.
    • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:8:p:1093-1103
    DOI: 10.1287/mnsc.43.8.1093
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