Time-based service constraints for inventory systems with commitment lead time

Taher Ahmadi (), Zümbül Atan (), Ton Kok () and Ivo Adan ()
Additional contact information
Taher Ahmadi: Nyenrode Business University
Zümbül Atan: Eindhoven University of Technology
Ton Kok: Eindhoven University of Technology
Ivo Adan: Eindhoven University of Technology

OR Spectrum: Quantitative Approaches in Management, 2020, vol. 42, issue 2, No 2, 355-395

Abstract: Abstract We consider a firm which targets a certain level of customer responsiveness with a minimum operational cost. The firm employs a preorder strategy, in which customers place their orders before their actual need based on a predefined time window called commitment lead time and, in turn, they receive a bonus. The firm aims to determine the optimal control policy, which consists of the optimal commitment lead time and the optimal base-stock level, such that the total operational cost is minimized subject to a time-based service level target. We formulate two time-based service criteria to measure the firm’s responsiveness in terms of average customer waiting time and individual customer waiting time in two constraint optimization models called ACO and CCO, respectively. We derive the exact probability distribution of customer waiting time, and we propose exact and heuristic optimization algorithms to solve the ACO and CCO models. We show that the commitment lead time not only increases the firm’s responsiveness level but also decreases the customers’ maximum waiting time. We find that when the firm targets a high level of responsiveness, the value of commitment lead time is more highlighted. We study multiple interesting extensions with two customer classes, random replenishment lead times and a combined model with two time-based service level targets.

Keywords: Preorder strategy; Responsiveness; Commitment lead time; Waiting time; Service level (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00291-020-00590-0

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