A dynamic rationing policy for continuous-review inventory systems

Abstract

Stock rationing is an inventory policy that allows differential treatment of customer classes without using separate inventories. In this paper, we propose a dynamic rationing policy for continuous-review inventory systems, which utilizes the information on the status of the outstanding replenishment orders. For both backordering and lost sales environments, we conduct simulation studies to compare the performance of the dynamic policy with the static critical level and the common stock policies and quantify the gain obtained. We propose two new bounds on the optimum dynamic rationing policy that enables us to tell how much of the potential gain the proposed dynamic policy realizes. We discuss the conditions under which stock rationing – both dynamic and static – is beneficial and assess the value of the dynamic policy.