Inventory Pooling to Deliver Differentiated Service

30 Pages Posted: 19 Mar 2012

See all articles by Aydin Alptekinoglu

Aydin Alptekinoglu

Smeal College of Business, Pennsylvania State University

Arunava Banerjee

University of Florida

Anand A. Paul

University of Florida

Nikhil Jain

Servigistics

Date Written: March 15, 2012

Abstract

Inventory pooling is at the root of many celebrated ideas in operations management. Postponement, component commonality, and resource flexibility are some examples. Motivated by our experience in the after-market services industry, we propose a model of inventory pooling to meet differentiated service levels for multiple customers. Our central research question is the following: What are the minimum inventory level and optimal allocation policy when a pool of inventory is used in a single period to satisfy individual service levels for multiple customers? We measure service by the probability of fulfilling a customer’s entire demand immediately from stock. We characterize the optimal solution in several allocation policy classes, provide some structural results, formulas and bounds, and also make detailed inter-policy comparisons. We show that the pooling benefit is always strictly positive, even when an arbitrary number of customer demands are perfectly positively correlated.

Keywords: inventory pooling, allocation policy, type-1 service level, spare parts management

Suggested Citation

Alptekinoglu, Aydin and Banerjee, Arunava and Paul, Anand A. and Jain, Nikhil, Inventory Pooling to Deliver Differentiated Service (March 15, 2012). Available at SSRN: https://ssrn.com/abstract=2025402 or http://dx.doi.org/10.2139/ssrn.2025402

Aydin Alptekinoglu (Contact Author)

Smeal College of Business, Pennsylvania State University ( email )

University Park, PA 16802
United States

Arunava Banerjee

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Anand A. Paul

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Nikhil Jain

Servigistics ( email )

140 Kendrick Street
Needham, MA 02494
United States

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