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Controlling Inventories in Divergent Supply Chains with Advance-Order Information

Department of Industrial Management and Logistics, Lund University, P.O. Box 118, SE-221 00 Lund, Sweden
johan.marklund{at}iml.lth.se

This paper considers a generic one-warehouse multiple-retailer inventory system under continuous review, where customers provide perfect advance-order information. More specifically, each customer order entails a due date specifying when the customer wants the item delivered. The information is perfect in the sense that a placed order cannot be revised. With the intent of using the advance-order information fully throughout the supply chain, each installation replenishes its stock using order base-stock policies (see Hariharan and Zipkin 1995). As for stock allocation, the presence of advance-order information at the central warehouse raises important questions regarding when reservations should be made for different retailers, i.e., how to make best use of the available temporal information to allocate items to retailers. Exact and approximate cost evaluation techniques are presented for the general case, the general reservation policy, as well as for the two special cases of reserving as early as possible, the complete reservation policy, and as late as possible, the last-minute allocation policy. A numerical study illustrates the performance of the proposed heuristics and provides insights on the value of using advance-order information in supply chain inventory control.

Subject classifications: inventory/production; multiechelon; stochastic; advance-order information; reservation; allocation.
History: Received January 2000; revision received August 2005; accepted October 2005.