Centre for Supply Chain Management
CMA Canada Supply Chain Management Seminar Series: Comparison of Three Continuous Review (s,Q) Inventory Systems with Two Types of Customers
published: 2005 | Research publication | CMA Canada Supply Chain Manageme
ABSTRACT: We live in an era where customer service is becoming more and more important. An important aspect of service is product availability, which is related to service levels in inventory systems. In many cases, not all customer demand for a single product requires the same service level. In particular, it is proposed to study the problem where some customers have a higher stock out cost and/or require a different minimum service level than another customer of the same product. This paper is a comparative study of three different inventory systems when there are two classes of customers.
The first set of inventory systems that we study is one where there are two different (s,Q) inventory systems for the two types of customers. The reorder level(s) and the reorder quantity(Q) that minimizes the long-run expected cost rate are determined for each type of customer. We then calculate the total cost for the two systems put together.
The second system investigated is one where we pool the inventory for the two types of customers. Once again we determine the reorder level(s) and the reorder quantity(Q) that minimizes the long-run expected cost rate.
The third system that is analyzed in this paper is a continuous review (s,Q) inventory system with two types of customers – priority and ordinary. When inventory levels are low, only the priority customers are serviced and demands generated by ordinary customers are assumed to be lost. One of the objectives of the study is to determine the lowest inventory level at which an ordinary customers demand is met so as to minimize the long-run expected cost rate. We also determine the reorder level and reorder quantity that optimizes the long-run expected cost rate.
The 3 systems are then compared analytically and a set of conditions under which one system is better than the other are derived for various different objectives.
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revised May 17/05