Threshold inventory rationing policy for multiple customer demand classes

In this paper, we consider an inventory rationing policy for multiple customer demand classes with unique arrival rates under continuous review environment. The scheme is characterised by a set of monotone threshold inventory levels, which gives the indications when to reserve stock for higher priority customer classes. The proposed inventory policy serves all customers on a first come first serve (FCFS) basis until the on‐hand inventory is above the threshold levels, and cut‐off the services of the lower priority customers when on‐hand inventory falls below the threshold level of the customer class. The threshold rationing policy studied here can be proposed as a way to avoid the problems inherent in the roundup policy while still taking the advantage of inventory pooling. First we analyse this static policy under a special threshold clearing mechanism to fill the backlog, and then to calculate the policy parameter we develop an efficient algorithms.