Inventory timing: How to serve a stochastic season

Jochen Schlapp, Moritz Fleischmann and Danja Sonntag

Production and Operations Management, 2022, vol. 31, issue 7, 2891-2906

Abstract: Firms that sell products over a limited selling season often have only imperfect information about (a) the exact timing of that season, (b) the demand volume to expect, and (c) the temporal distribution of demand over the selling season. Given these uncertainties, firms must determine not only how much inventory to stock but also when to make that inventory available to customers. We thus ask: What is a firm's optimal inventory quantity and timing for products sold during a stochastic selling season? Although the newsvendor literature has developed a thorough understanding of the firm's optimal inventory quantity, it has failed to inform decision‐makers about choosing the optimal inventory timing. We address this issue by developing a theoretical model of a firm that sells a product over a stochastic selling season, and we study how this firm should choose its inventory timing and inventory quantity so as to maximize expected profits. We also identify the effects of optimal inventory timing on the firm's ability to satisfy customer demand and show how early inventory timing can be detrimental to customer service. Our core results imply three immediate recommendations for managers. First, optimal inventory timing is an effective weapon for combating both high inventory holding costs and high levels of uncertainty in the firm's customer demand pattern. Second, to be effective, a firm's inventory timing must be carefully aligned with the firm's inventory quantity. Third, naïve decision rules (e.g., “earlier is better”) may reduce not only the firm's profits but also its capacity to serve customer demand.

Date: 2022
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