Base-stock policies with reservations

Van Foreest, Nicky D., Teunter, Ruud H. and Syntetos, Argyrios ORCID: https://orcid.org/0000-0003-4639-0756 2018. Base-stock policies with reservations. Omega 81 , pp. 48-56. 10.1016/j.omega.2017.09.008

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Abstract

All intensively studied and widely applied inventory control policies satisfy demand in accordance with the First-Come-First-Served (FCFS) rule, whether this demand is in backorder or not. Interestingly, this rule is sub-optimal when the fill-rate is constrained or when the backorder cost structure includes fixed costs per backorder and costs per backorder per unit time. In this paper we study the degree of sub-optimality of the FCFS rule for inventory systems controlled by the well-known base-stock policy. As an alternative to the FCFS rule, we propose and analyze a class of generalized base-stock policies that reserve some maximum number of items in stock for future demands, even if backorders exist. Our analytic results and numerical investigations show that such alternative stock reservation policies are indeed very simple and considerably improve either the fillrate or reduce the total cost, without having much effect on the backorder level.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Elsevier
ISSN:	0305-0483
Date of First Compliant Deposit:	24 July 2018
Date of Acceptance:	22 September 2017
Last Modified:	24 Nov 2024 09:30
URI:	https://orca.cardiff.ac.uk/id/eprint/107878

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