Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales

This paper considers the stock rationing problem of a single-item, make-to-stock production system with several demand classes and lost sales. For the case of Poisson demands and exponential production times, we show that the optimal policy can be characterized by a sequence of monotone stock ration...

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Bibliographic Details
Published in:Management science 1997-08, Vol.43 (8), p.1093-1103
Main Author: Ha, Albert Y
Format: Article
Language:English
Subjects:
Applications
Capital costs
Carrying costs
Cost efficiency
Cost of sales
Demand
Dynamic programming
dynamic programming/optimal control
Inventories
inventory
Inventory management
inventory rationing
inventory/production
Make to stock
Management
Operations research
optimal control
production
Production costs
Production systems
Production technology
Rationing
Stock sales
Studies
Unit costs
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Summary:This paper considers the stock rationing problem of a single-item, make-to-stock production system with several demand classes and lost sales. For the case of Poisson demands and exponential production times, we show that the optimal policy can be characterized by a sequence of monotone stock rationing levels. For each demand class, there exists a stock rationing level at or below which it is optimal to start rejecting the demand of this class in anticipation of future arrival of higher priority demands. A simple queueing model is analyzed to compute the operating cost of a rationing policy. In a numerical study, we compare the optimal rationing policy with a first-come first-served policy to investigate the benefit of stock rationing under different operating conditions of the system.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.43.8.1093