An (s, Q) inventory system with two classes of customers

In this paper, we study a lost‐sales (s, Q) inventory system with two classes of customers – high priority and low priority. We compare two policies for supplying the two types of customers with their requirements. In one policy, both customers are treated alike. In the other policy, when inventory levels are below a threshold level, only the demands from high‐priority (HP) customers are met, whereas the low‐priority (LP) customers are sent away unsatisfied. Under certain conditions, we note the remarkable fact that for a lost‐sales (s, Q) inventory system with two classes of customers, differentiating between customers and hoarding items for the HP customer yield lower costs for the supplier and better service levels for both types of customers.