Updating Inventories of Substitutable Resources in Response to Forecast-Updates

Production and Operations Management, Forthcoming

26 Pages Posted: 21 Jun 2013 Last revised: 14 Nov 2013

See all articles by Saurabh Bansal

Saurabh Bansal

Pennsylvania State University - Smeal College of Business

James Dyer

University of Texas at Austin

Date Written: June 20, 2013

Abstract

We show simple yet optimal results to update the inventory/capacity levels, expected profit, fill rates, and service levels of substitutable resources, in response to an updating of the mean demand forecasts for the resources. We find that a change in the mean demand of one resource does not affect the optimal inventory level of any other resource. The results are obtained for demands with location-scale distributions, and for a revenue structure satisfying a triangle property such that the manager will always use the inventory of a resource to meet its own demand first before using it for substitution. The results for updating the performance measures also extend to managers who maintain non-optimal inventory/capacity levels. Implications for procurement, sales and operational planning, and multi-store operations are discussed.

Keywords: substitutable resources, forecast updates, inventory updates, structural properties of multi-product newsvendor problems

Suggested Citation

Bansal, Saurabh and Dyer, James, Updating Inventories of Substitutable Resources in Response to Forecast-Updates (June 20, 2013). Production and Operations Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2282711 or http://dx.doi.org/10.2139/ssrn.2282711

Saurabh Bansal (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States
8148633797 (Phone)

James Dyer

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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