Managing stock‐outs effectively with order fulfilment systems

Abstract

PurposeWhen approaching a stock‐out situation, a company should be able to actively manage the allocation of available products on the basis of customer requirements and priorities as well as contractual relationships. The purpose of this paper is to describe different order promising mechanisms and analyze how well they can contribute to the effective management of stock‐out situations.Design/methodology/approachThe paper provides a formal description and analysis of alternative order promising mechanism applicable in make to stock systems. Numerical analysis is conducted based on the data of a pharmaceutical company.FindingsThe paper clearly points out the potential of alternative order promising mechanisms to alleviate the negative consequences associated with a temporary stock‐out situation.Research limitations/implicationsThe paper does not consider implications of inventory pre‐allocation to customer classes. Further research should address the interplay between pre‐allocation and different order allocation mechanisms.Practical implicationsThe results obtained from this analysis provide guidelines for manufacturers, retailers, and vendors of supply chain software on how to design and utilize order promising systems.Originality/valueThe paper provides a consistent formal approach to modelling order promising mechanisms, introduce new and innovative order promising mechanisms and provide valuable insight into their performance through numerical analysis.