Multi-Product Inventory Management under Customer Substitution and Capacity Restrictions

Operations Research, Forthcoming

Posted: 16 Feb 2013 Last revised: 22 Jul 2019

See all articles by Jochen Schlapp

Jochen Schlapp

Frankfurt School of Finance & Management gemeinnützige GmbH

Moritz Fleischmann

University of Mannheim, Business School

Date Written: February 15, 2013

Abstract

The presence of customer substitution poses substantial challenges to a firm’s inventory management, particularly so when the firm has to manage a multi-product portfolio with capacity restrictions. In this paper, we derive the optimal inventory policy for a capacity-constrained firm selling multiple partially substitutable products over a finite season in a market with stockout-based customer substitution. We also establish the sensitivity of the optimal policy with respect to changes in capacity and substitution preferences. In doing so, we disentangle the direct and indirect dynamics of substitution, and show the non-monotonic, and partially counterintuitive influence of capacity and substitution on the firm’s optimal inventory policy.

Keywords: inventory management, newsvendor, capacity, stockout-based substitution, multi-product

Suggested Citation

Schlapp, Jochen and Fleischmann, Moritz, Multi-Product Inventory Management under Customer Substitution and Capacity Restrictions (February 15, 2013). Operations Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2218297 or http://dx.doi.org/10.2139/ssrn.2218297

Jochen Schlapp (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Moritz Fleischmann

University of Mannheim, Business School ( email )

University of Mannheim
P.O. Box 10 34 62
Mannheim, 68131
Germany

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