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Title: A new two-bin policy for inventory systems with differentiated demand classes
Authors: Ghosh, Sugoutam
Piplani, Rajesh
Viswanathan, S.
Keywords: DRNTU::Business::Operations management::Inventory control
Issue Date: 2014
Source: Ghosh, S., Piplani, R., & Viswanathan, S. (2014). A new two-bin policy for inventory systems with differentiated demand classes. Production and operations management, in press.
Series/Report no.: Production and operations management
Abstract: We consider an inventory system under continuous review with two demand classes that are different in terms of service level required (or penalty cost incurred for backordering of demand). Prior literature has proposed the critical level rationing (CLR) policy under which the demand from the lower priority class is backordered once inventory falls below the critical level. While this reduces the penalty cost for the higher demand class, the fill rate achieved for the lower priority demand class gets compromised. In this study, we propose a new class of two-bin (2B) policy for the problem. The proposed 2B policy assigns separate bins of inventory for the two demand classes. The demand for each class is fulfilled from its assigned bin. However, when the bin intended for the higher demand class is empty, the demand from the higher class can still be fulfilled with the inventory from the other bin. The advantage of the 2B policy is that better fill rates are achieved, especially for the lower demand class. Computational results show that the proposed policy is able to provide a much higher service level for the lower priority class demand without increasing the total cost too much and without affecting the service level for the higher priority class. When a service level constrained optimization problem is considered, the 2B policy dominates the CLR policy when the service level difference for the two classes is not too high or the service levels required for both the classes are relatively lower.
ISSN: 1059-1478
DOI: 10.1111/poms.12299
Rights: © 2014 Production and Operations Management Society. This is the author created version of a work that has been peer reviewed and accepted for publication in Production and Operations Management Society, published by Wiley-Blackwell on behalf of Production and Operations Management Society.  It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document.  The published version is available at: [Article DOI:].
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:MAE Journal Articles
NBS Journal Articles

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