Inventory Models with Delivery Upgrade

46 Pages Posted: 28 Feb 2010

See all articles by Xiaoying Liang

Xiaoying Liang

City University of Hong Kong - Department of Management Sciences

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Date Written: February 26, 2010

Abstract

Motivated by real-life business issues of Toyota China dealerships, we consider inventory-control models with delivery upgrades, in which the seller allocates its on-hand inventory to price and delivery-time sensitive customers. The seller has two decisions: inventory commitment and inventory replenishment. The former addresses, within an inventory cycle, how on-hand inventories are allocated between the two classes of customers. The latter addresses, between inventory cycles, how the inventory is replenished. In this paper, we develop the optimal inventory allocation and upgrade, and inventory replenishment policies, and demonstrate that the optimal control can be characterized by a switching curve. We extend our analysis to include cases of upgrade cost, stock-out substitution, and capacity constraint. Finally, we use the Toyota dealership data to calibrate the required parameters and demonstrate the potential of the optimal inventory allocation and upgrade control.

Keywords: Inventory Management, Delivery Lead Time, Upgrade

JEL Classification: C61, M11

Suggested Citation

Liang, Xiaoying and Yan, Houmin, Inventory Models with Delivery Upgrade (February 26, 2010). Available at SSRN: https://ssrn.com/abstract=1560264 or http://dx.doi.org/10.2139/ssrn.1560264

Xiaoying Liang (Contact Author)

City University of Hong Kong - Department of Management Sciences ( email )

Kowloon Tong, Kowloon
Hong Kong
34428647 (Phone)

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
111
Abstract Views
760
rank
248,450
PlumX Metrics