Inventory Pooling to Deliver Differentiated Service.

Alptekinoğlu, Aydın; Banerjee, Arunava; Paul, Anand; Jain, Nikhil

Inventory pooling is at the root of many celebrated ideas in operations management. Postponement, component commonality, and resource flexibility are some examples. Motivated by our experience in the aftermarket services industry, we propose a model of inventory pooling to meet differentiated service levels for multiple customers. Our central research question is the following: What are the minimum inventory level and optimal allocation policy when a pool of inventory is used in a single period to satisfy individual service levels for multiple customers? We measure service by the probability of fulfilling a customer's entire demand immediately from stock. We characterize the optimal solution in several allocation policy classes; provide some structural results, formulas, and bounds; and also make detailed interpolicy comparisons. We show that the pooling benefit is always strictly positive, even when there are an arbitrary number of customers with perfectly positively correlated demands.

INVENTORY control; OPERATIONS management; FLEXIBLE manufacturing systems; SERVICE industries; RESOURCE allocation; PROBABILITY theory; CONSUMER behavior; ECONOMIC demand

Manufacturing & Service Operations Management (M&SOM), 2013, Vol 15, Issue 1, p33

1526-5498

Academic Journal

10.1287/msom.1120.0399