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Resource Pooling and Allocation Policies to Deliver Differentiated Service

Management Science, 2016 (Forthcoming)

37 Pages Posted: 25 May 2016 Last revised: 17 Oct 2016

Yuanguang Zhong

South China University of Technology

Zhichao Zheng

Singapore Management University

Mabel Chou

National University of Singapore (NUS) - Department of Decision Sciences

Chung-Piaw Teo

NUS Business School - Department of Decision Sciences

Date Written: March 4, 2014

Abstract

Resource pooling strategies have been widely used in industry to match supply with demand. However, effective implementation of these strategies can be challenging. Firms need to integrate the heterogeneous service level requirements of different customers into the pooling model and allocate the resources appropriately in the most effective manner. The traditional analysis of inventory pooling, for instance, considers the performance metric in a centralized system and does not address the associated issue of inventory allocation. Using Blackwell's Approachability Theorem, we derive a set of necessary and sufficient conditions to relate the fill rate requirements to the resources (inventory or capacity) needed in the system. This provides a new approach to studying the value of resource pooling in a system with differentiated service requirements. Furthermore, we show that with "allocation flexibility'' the amount of safety stock needed in a system with identical and independent customers does not grow with the number of customers but instead diminishes to zero as the number of customers grows sufficiently large. This surprising result holds for all demand distribution with bounded first and second moments.

Keywords: Blackwell's Approachability Theorem, Inventory Pooling, Service Levels, Fill Rates

Suggested Citation

Zhong, Yuanguang and Zheng, Zhichao and Chou, Mabel and Teo, Chung-Piaw, Resource Pooling and Allocation Policies to Deliver Differentiated Service (March 4, 2014). Management Science, 2016 (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2783614

Yuanguang Zhong

South China University of Technology ( email )

School of Business Administration, SCUT
Guangzhou, AR Guangdong 510640
China

Zhichao Zheng (Contact Author)

Singapore Management University ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore 178899, 178899
Singapore
68085474 (Phone)

HOME PAGE: http://sites.google.com/site/zhengzhichao1985

Mabel Chou

National University of Singapore (NUS) - Department of Decision Sciences ( email )

NUS Business School
BIZ 1 Building, #02-01, 1 Business Link
117592
Singapore

Chung-Piaw Teo

NUS Business School - Department of Decision Sciences ( email )

15 Kent Ridge Drive
Mochtar Riady Building, BIZ 1 8-69
119245
Singapore

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