Optimal Stock Allocation for a Capacitated Supply System

Francis de Véricourt (), Fikri Karaesmen () and Yves Dallery ()
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Francis de Véricourt: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Fikri Karaesmen: Department of Industrial Engineering, Koç University, 80910 Sariyer-Istanbul, Turkey
Yves Dallery: Laboratoire Génie Industriel, Ecole Centrale Paris, Grande Voie des Vignes, 92295 Châtenay-Malabry Cedex, France

Management Science, 2002, vol. 48, issue 11, 1486-1501

Abstract: We consider a capacitated supply system that produces a single item that is demanded by several classes of customers. Each customer class may have a different backorder cost, so stock allocation arises as a key decision problem. We model the supply system as a multi customer make-to-stock queue. Using dynamic programming, we show that the optimal allocation policy has a simple and intuitive structure. In addition, we present an efficient algorithm to compute the parameters of this optimal allocation policy. Finally, for a typical supply chain design problem, we illustrate that ignoring the stock allocation dimension---a frequently encountered simplifying assumption---can lead to incorrect managerial decisions.

Keywords: Inventory/Production; Stock Allocation; Stochastic: Multi-Class; Queues: Make-to-Stock System (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (80)

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