Optimal inventory management with supply backordering

M. Jakšič and J.C. Fransoo

International Journal of Production Economics, 2015, vol. 159, issue C, 254-264

Abstract: We study the inventory control problem of a retailer working under stochastic demand and stochastic limited supply. We assume that the unfilled part of the retailer׳s order is fully backordered at the supplier and replenished with certainty in the following period. As it may not always be optimal for the retailer to replenish the backordered supply, we also consider the setting in which the retailer has a right to either partially or fully cancel these backorders, if desired. We show the optimality of the base-stock policy and characterize the threshold inventory position above which it is optimal to fully cancel the replenishment of the backordered supply. We carry out a numerical analysis to quantify the benefits of supply backordering and the value of the cancelation option, and reveal several managerial insights.

Keywords: Stochastic inventory theory; Supply uncertainty; Periodic review policy; Supply backordering (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S092552731400293X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:159:y:2015:i:c:p:254-264

DOI: 10.1016/j.ijpe.2014.09.015

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().