Inventory rationing in an (s, Q) inventory model with lost sales a two demand classes

Ph. Melchiors, Rommert Dekker and Marcel Kleijn

No EI 9837, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Whenever demand for a single item can be categorized into classes of different priority, an inventory rationing policy should be considered. In this paper we analyse a continuous review (s,Q) model with lost sales and two demand classes. A so-called critical level policy is applied to ration the inventory among the two demand classes. With this policy, low--priority demand is rejected in anticipation of future high--priority demand whenever the inventory level is at or below a prespecified critical level. For Poisson demand and deterministic lead times, we present an exact formulation of the average inventory cost. A simple optimization procedure is presented, and in a numerical study we compare the optimal rationing policy with a policy where no distinction between the demand classes is made. The benefit of the rationing policy is investigated for various cases and the results show that significant cost reductions can be obtained.

Keywords: Inventory; lost sales; rationing; two demand classes (search for similar items in EconPapers)
Date: 1998-12-03
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Citations: View citations in EconPapers (4)

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Journal Article: Inventory rationing in an (s, Q) inventory model with lost sales and two demand classes (2000)
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