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

Albert Y. Ha
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Albert Y. Ha: School of Management, Yale University, New Haven, Connecticut 06520

Management Science, 1997, vol. 43, issue 8, 1093-1103

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.

Keywords: inventory/production; inventory rationing; dynamic programming/optimal control; applications (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:43:y:1997:i:8:p:1093-1103

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