Inventory management for dual sales channels with inventory-level-dependent demand

Tingting Li, Xiaobo Zhao and Jinxing Xie
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Tingting Li: Department of Mathematical Sciences, Tsinghua University, Beijing, China
Xiaobo Zhao: Department of Industrial Engineering, Tsinghua University, Beijing, China
Jinxing Xie: Department of Mathematical Sciences, Tsinghua University, Beijing, China

Journal of the Operational Research Society, 2015, vol. 66, issue 3, 488-499

Abstract: This paper studies the inventory management problem of dual channels operated by one vendor. Demands of dual channels are inventory-level-dependent. We propose a multi-period stochastic dynamic programming model which shows that under mild conditions, the myopic inventory policy is optimal for the infinite horizon problem. To investigate the importance of capturing demand dependency on inventory levels, we consider a heuristic where the vendor ignores demand dependency on inventory levels, and compare the optimal inventory levels with those recommended by the heuristic. Through numerical examples, we show that the vendor may order less for dual channels than those recommended by the heuristic, and the difference between the inventory levels in the two cases can be so large that the demand dependency on inventory levels cannot be neglected. In the end, we numerically examine the impact of different ways to treat unmet demand and obtain some managerial insights.

Date: 2015
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