Appropriate Inventory Policies When Service Affects Future Demands

Lawrence W. Robinson

Chapter 5 in Cross-Functional Inventory Research, 2016, pp 135-167 from World Scientific Publishing Co. Pte. Ltd.

Abstract: A major problem in using penalty costs to derive an inventory stocking policy is the accurate assessment of the lost goodwill of a dissatisfied customer. In this chapter, the lost goodwill is explicitly manifested as a drop in future demand, so that the optimal ordering policy balances current holding costs against foregone future profits. Two special cases are examined for which a stationary stocking policy is optimal. These two cases provide bounds for the optimal stocking policy for a very general class of problems where the demand variability changes with the mean.

Keywords: Inventory Management; Cross-Functional Approach; Business Strategy (search for similar items in EconPapers)
JEL-codes: M19 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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