Advance demand information and early fulfilment in inventory management with two demand classes

Abstract

This paper investigates the use of advance demand information in three inventory models, each serving two demand classes. The first model is a periodic-review pure inventory system with advance demand information from both classes. The second model considers continuous-review production-inventory system, where only one class provides advance demand information. In the third model, both demand classes provide advance demand information, but one also accepts early fulfilment. An optimal inventory replenishment policy is characterised in the first model under certain conditions. In the remaining two models, simulation-optimisation methods determine optimal kanban-based early fulfilment policies. The presence of a small fraction of customers, who agree to provide advance demand information and accept early fulfilment, is shown to be more advantageous than having all customers provide the same amount of advance demand information but no early fulfilment. Managerial insights are drawn in certain scenarios.