Article ID: | iaor201524028 |
Volume: | 61 |
Issue: | 5 |
Start Page Number: | 418 |
End Page Number: | 426 |
Publication Date: | Aug 2014 |
Journal: | Naval Research Logistics (NRL) |
Authors: | Yan Houmin, Liang Xiaoying |
Keywords: | combinatorial optimization, demand, inventory: order policies |
We consider a capacitated inventory model with flexible delivery upgrades, in which the seller allocates its on‐hand inventory to price‐ and delivery‐time‐sensitive customers. The seller has two decisions: inventory commitment and replenishment. The former addresses how the on‐hand inventories are allocated between the two classes of customers within an inventory cycle. The latter addresses how the inventory is replenished between inventory cycles. We develop optimal inventory allocation, upgrade, and replenishment policies and demonstrate that the optimal policy can be characterized by a set of switching curves.