Article ID: | iaor201524754 |
Volume: | 23 |
Issue: | 7 |
Start Page Number: | 1227 |
End Page Number: | 1242 |
Publication Date: | Jul 2014 |
Journal: | Production and Operations Management |
Authors: | Sethi Suresh, Yan Houmin, Liang Xiaoying, Wang Haifeng |
Keywords: | behaviour, management, marketing, supply & supply chains, inventory, inventory: order policies |
We propose a model where customers are classified into two groups: short lead‐time customers who require the product immediately and long lead‐time customers to whom the supplier may deliver either immediately or in the next cycle. Unmet orders are backlogged with associated costs. Specifically, the supplier faces two problems: how the on‐hand inventories should be allocated between the two classes of customers and how the backlogged orders should be cleared when replenishments arrive. We treat the former as an inventory commitment problem and handle the latter with priority rules. We characterize and compare the inventory commitment policies with three priority rules in clearing backlogs. We also explore the optimal inventory replenishment decision and evaluate the performance of each priority rule.