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A Real-Time Decision Rule for an Inventory System with Committed Service Time and Emergency Orders

Huang, S; Axsäter, Sven LU ; Dou, YF and Chen, J (2011) In European Journal of Operational Research 215. p.70-79
Abstract
n this paper, we study the inventory system of an online retailer with compound Poisson demand. The retailer normally replenishes its inventory according to a continuous review (nQ, R) policy with a constant lead time. Usually demands that cannot be satisfied immediately are backordered. We also assume that the customers will accept a reasonable waiting time after they have placed their orders because of the purchasing convenience of the online system. This means that a sufficiently short waiting time incurs no shortage costs. We call this allowed waiting time “committed service time”. After this committed service time, if the retailer is still in shortage, the customer demand must either be satisfied with an emergency supply that takes no... (More)
n this paper, we study the inventory system of an online retailer with compound Poisson demand. The retailer normally replenishes its inventory according to a continuous review (nQ, R) policy with a constant lead time. Usually demands that cannot be satisfied immediately are backordered. We also assume that the customers will accept a reasonable waiting time after they have placed their orders because of the purchasing convenience of the online system. This means that a sufficiently short waiting time incurs no shortage costs. We call this allowed waiting time “committed service time”. After this committed service time, if the retailer is still in shortage, the customer demand must either be satisfied with an emergency supply that takes no time (which is financially equivalent to a lost sale) or continue to be backordered with a time-dependent backorder cost. The committed service time gives an online retailer a buffer period to handle excess demands. Based on real-time information concerning the outstanding orders of an online retailer and the waiting times of its customers, we provide a decision rule for emergency orders that minimizes the expected costs under the assumption that no further emergency orders will occur. This decision rule is then used repeatedly as a heuristic. Numerical examples are presented to illustrate the model, together with a discussion of the conditions under which the real-time decision rule provides considerable cost savings compared to traditional systems. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
European Journal of Operational Research
volume
215
pages
70 - 79
publisher
Elsevier
external identifiers
  • wos:000294394700008
  • scopus:79960901763
ISSN
0377-2217
DOI
10.1016/j.ejor.2011.05.029
language
English
LU publication?
yes
id
69d6be5d-cda3-44c8-89ad-df2c861ff045 (old id 1978930)
date added to LUP
2011-06-20 08:41:37
date last changed
2017-09-24 03:20:48
@article{69d6be5d-cda3-44c8-89ad-df2c861ff045,
  abstract     = {n this paper, we study the inventory system of an online retailer with compound Poisson demand. The retailer normally replenishes its inventory according to a continuous review (nQ, R) policy with a constant lead time. Usually demands that cannot be satisfied immediately are backordered. We also assume that the customers will accept a reasonable waiting time after they have placed their orders because of the purchasing convenience of the online system. This means that a sufficiently short waiting time incurs no shortage costs. We call this allowed waiting time “committed service time”. After this committed service time, if the retailer is still in shortage, the customer demand must either be satisfied with an emergency supply that takes no time (which is financially equivalent to a lost sale) or continue to be backordered with a time-dependent backorder cost. The committed service time gives an online retailer a buffer period to handle excess demands. Based on real-time information concerning the outstanding orders of an online retailer and the waiting times of its customers, we provide a decision rule for emergency orders that minimizes the expected costs under the assumption that no further emergency orders will occur. This decision rule is then used repeatedly as a heuristic. Numerical examples are presented to illustrate the model, together with a discussion of the conditions under which the real-time decision rule provides considerable cost savings compared to traditional systems.},
  author       = {Huang, S and Axsäter, Sven and Dou, YF and Chen, J},
  issn         = {0377-2217},
  language     = {eng},
  pages        = {70--79},
  publisher    = {Elsevier},
  series       = {European Journal of Operational Research},
  title        = {A Real-Time Decision Rule for an Inventory System with Committed Service Time and Emergency Orders},
  url          = {http://dx.doi.org/10.1016/j.ejor.2011.05.029},
  volume       = {215},
  year         = {2011},
}