Order overlapping: A practical approach for preventing shortages during screening

Abstract

We develop an EOQ-type model with unreliable supply, where each order contains a random fraction of imperfect quality items with a known distribution. Upon receiving an order, a screening process is conducted to identify imperfect items. These imperfect items are salvaged as a single batch at the end of the screening process. To prevent shortages during the screening process, an order is placed when the inventory level is just enough to cover the demand during the screening period. Then, the demand during the screening period of an order is met from the inventory of the “previous” order. This represents an improvement in customer service level over earlier literature, where demand is assumed to be met during the screening period from the order being screened leading to potential shortages. We show that this improvement in service level comes at a modest cost. We further analytically and numerically study our model and draw useful insights.