Impacts of supply disruptions and customer differentiation on a partial-backordering inventory system

Abstract

In this paper, we study a single-product inventory system which involves a supplier, a retailer, and differentiated customers. The supplier provides products to the retailer which in turn sells products to its customers. The supplier is unreliable and is subject to random disruptions. The retailer adopts a periodic-review inventory policy, under which the retailer reviews its inventory position every a fixed period of time and decides whether a replenishment is needed or not. Partial backordering is applied when a stockout occurs. That is, under the situations of stockouts, customers can choose either to backorder products or to abandon the purchase. Customers are segmented into two classes according to their backordering probabilities. The customer class with high backordering probability is provided with high priority to receive backorders. In this paper we allow more than one outstanding orders to exist, which is not the case in the previous literature. We develop a simulation model for such an inventory system and investigate the impacts of supply disruptions and customer differentiation on this inventory system.