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A centralized ordering and allocation system with backorders and strategic lost sales

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  • Yanyi Xu
  • Arnab Bisi
  • Maqbool Dada

Abstract

This article considers a multi-retailer distribution system that is managed by a central decision maker who, at the start of each period, determines how much to order to replenish the system stock. The decision maker also determines how to allocate incoming pipeline inventory to maintain inventory balance among the retailers. It has been noted in the literature that balancing inventories can equalize service levels among retailers. To improve the efficacy of the allocation, this article allows some demand to be rejected to keep inventories in balance. Consequently, depending on the realized pattern of demand during the delivery lead time, the inventory is dynamically allocated to each of the retailers. For the model with two retailers, an exact representation of the infinite-horizon long-run average cost function is developed. This exact expression is used to develop conditions for the unique solution for the two-retailer case. The presented analysis holds for a wide class of continuously and discretely distributed demand.

Suggested Citation

  • Yanyi Xu & Arnab Bisi & Maqbool Dada, 2010. "A centralized ordering and allocation system with backorders and strategic lost sales," IISE Transactions, Taylor & Francis Journals, vol. 42(11), pages 812-824.
    • Handle: RePEc:taf:uiiexx:v:42:y:2010:i:11:p:812-824
    DOI: 10.1080/0740817X.2010.491499
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    Cited by:

    1. Protopappa-Sieke, Margarita & Sieke, Marcel A. & Thonemann, Ulrich W., 2016. "Optimal two-period inventory allocation under multiple service level contracts," European Journal of Operational Research, Elsevier, vol. 252(1), pages 145-155.
    2. Bansal, Vishal & Bisi, Arnab & Roy, Debjit & Venkateshan, Prahalad, 2024. "Integrated inventory replenishment and online demand allocation decisions for an omnichannel retailer with ship-from-store strategy," European Journal of Operational Research, Elsevier, vol. 316(3), pages 1085-1100.
    3. Yanyi Xu & Arnab Bisi & Maqbool Dada, 2011. "A Periodic-Review Base-Stock Inventory System with Sales Rejection," Operations Research, INFORMS, vol. 59(3), pages 742-753, June.

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