A model for use in the rationing of inventory during lead time

Abstract

While the traditional solution to the problem of meeting stochastically variable demands for inventory during procurement lead time is through the use of some level of safety stock, several authors have suggested that a decision be made to employ some form of rationing so as to protect certain classes of demands against stockout by restricting issues to other classes. Nahmias and Demmy [10] derived an approximate continuous review model of systems with two demand classes which would permit an inventory manager to calculate the expected fill rates per order cycle for high‐priority, low‐priority, and total system demands for a variety of parameters. The manager would then choose the rationing policy that most closely approximated his fill‐rate objectives. This article describes a periodic review model that permits the manager to establish a discrete time rationing policy during lead time by prescribing a desired service level for high‐priority demands. The reserve levels necessary to meet this level of service can then be calculated based upon the assumed probability distributions of high‐ and low‐priority demands over lead time. The derived reserve levels vary with the amount of lead time remaining. Simulation tests of the model indicate they are more effective than the single reserve level policy studied by Nahmias and Demmy.

Inventory rationing via drop-shipping in Internet retailing: A sensitivity analysis

“…Haynsworth and Price [17] proposed a discrete time rationing policy during replenishment lead-time that can be used with a desired service level for high priority demands. Sobel and Zhang [31] studied a model with demand arriving simultaneously from a deterministic source and a random source, where the deterministic demand has to be satisfied immediately and the stochastic demand can be backordered.…”

Revenue Management in Order‐Driven Production Systems

“…The issue of allocating scarce resources to competing classes of demand occurs in many settings. The “stock or inventory rationing” problem is somewhat similar in the sense that the main issue is one of allocating scarce inventory among competing classes of customers (Haynsworth & Price, 1989; Ha, 1997). The issue is prevalent also in several service industries such as airlines (Smith, Leimkuhler, & Darrow, 1992), hotels (Relihan, 1989) and rental car agencies (Carrol & Grimes, 1995).…”

A decision framework proposal for customer order prioritization: A case study for a structural steel company

“…Because the inventories of the products are constraint resources for make-to-stock producers, the concept and methods for rationing inventories are necessary. Some of these are pointed out by Nahmias and Demmy (1981), Haynsworth and Price (1989), Rinks (1989) and Ha (1997). On the other hand, for make-to-order producers, it is not possible to manufacture till confirmed demand is occurred.…”