Inventory rationing policy and backup supply with two classes of customers.

Mingwu Liu,Xiaomei Wei,Rajagopalan Srinivasan

doi:10.1371/journal.pone.0214386

Abstract

In this paper, we consider joint decisions on inventory rationing and replenishment from a regular supplier or a backup supplier with two classes of customers. When the on-hand inventory falls below a certain critical level, an inventory rationing policy is implemented to reject lower priority customers. We investigated the potential use of a backup supplier as a response to inventory rationing policy. First, we establish an inventory level transition equilibrium equation for the steady-state inventory level probability distributions and derive analytical steady-state performance indicators. Next, the inventory cost function and the nonlinear optimization model are characterized. We use real-coded genetic algorithm (RCGA) to search for the optimal joint decisions. Finally, the proposed algorithm and the joint decisions are investigated with different inventory service polices through numerical experiments. The results show that the inventory rationing policy (IRP) is superior to the traditional priority service policy (CPSP) and the common first-come-first service policy (FCFSP). The backup supply can reduce inventory costs with high arrival intensity.

Highlights

Inventories include raw materials, work in progress and finished goods, which are important drivers in modern supply chains and have traditionally been used to alleviate uncertainty in demand and supply or to improve service levels
The results show that the inventory rationing policy (IRP) is superior to the traditional priority service policy (CPSP) and the common first-come-first service policy (FCFSP)
Several inventory system performance metrics are obtained for inventory control, including average inventory, reordering rate, shortage cost, and average inventory cost

Summary

Introduction

Inventories include raw materials, work in progress and finished goods, which are important drivers in modern supply chains and have traditionally been used to alleviate uncertainty in demand and supply or to improve service levels. Inventory rationing policy and backup supply with two classes of customers once the on-hand inventory level is below this threshold, the distributor will no longer provide inventory services to the general retailers. The above real-life examples and wide-ranging implications prompted us to consider jointly decision-making model for inventory rationing policy and backup procurement with two classes of customers. They will form a good word-of-mouth communication among the consumer groups and, have greater customer value Such customers should be meet demands and be provided priority services when visiting the store. When the store introduces a very welcome new product, an inventory rationing strategy (IRP) can be implemented to protect the service needs of the priority customers in response to the situations in which the inventory does not meet the needs of both classes of customers.

Literature review

Conclusions and extensions