Scandinavian Working Papers in Business Administration
CORAL Working Papers,
University of Aarhus, Aarhus School of Business, Department of Business Studies
No L-2008-07: Base stock policies with degraded service to larger orders
Bisheng Du () and Christian Larsen ()
Additional contact information
Bisheng Du: Department of Business Studies, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Christian Larsen: Department of Business Studies, Aarhus School of Business, Postal: The Aarhus School of Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Abstract: We study an inventory system controlled by a base stock policy assuming a compound renewal demand process. We extend the base stock policy by incorporating rules for degrading the service of larger orders. Two specific rules are considered, denoted Postpone(q,t) and Split(q), respectively. The aim of using these rules is to achieve a given order fill rate of the regular orders (those of size less than or equal to the parameter q) having less inventory. We develop mathematical expressions for the performance measures order fill rate (of the regular orders) and average on-hand inventory level. Based on numerical experiments, our conclusion is that Split(q) seems to perform best.
Keywords: base stock policy; compound renewal process; order fill rate; differentiated service
21 pages, January 1, 2008
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