Achieving High Individual Service-Levels Without Safety Stock? Optimal Rationing Policy of Pooled Resources

38 Pages Posted: 22 Aug 2019 Last revised: 31 Mar 2020

See all articles by Jiashuo Jiang

Jiashuo Jiang

New York University, Department of Information, Operations, and Management Sciences, Students

Shixin Wang

New York University, Department of Information, Operations, and Management Sciences, Students

Jiawei Zhang

New York University (NYU) - Department of Information, Operations, and Management Sciences

Date Written: May 2, 2019

Abstract

Resource pooling is a fundamental concept that has many applications in Operations Management for reducing and hedging uncertainty. An important problem in resource pooling is to decide (1) the capacity level of pooled resources in anticipation of random demand of multiple customers and (2) how the capacity should be allocated to fulfill customer demands after demand realization. In this paper, we present a general framework to study this two-stage problem when customers require individual and possibly different service-levels. Our modeling framework generalizes and unifies many existing models in the literature.

We propose a simple randomized rationing policy for any fixed feasible capacity level. Our main result is the optimality of this policy for very general service-level constraints, including Type-I and Type-II constraints and beyond. The result follows from a semi-infinite linear programming formulation of the problem and its dual. We also prove optimality of index policies for a large class of problems when the set of feasible fulfilled demands is a polymatroid.

Suggested Citation

Jiang, Jiashuo and Wang, Shixin and Zhang, Jiawei, Achieving High Individual Service-Levels Without Safety Stock? Optimal Rationing Policy of Pooled Resources (May 2, 2019). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3385089 or http://dx.doi.org/10.2139/ssrn.3385089

Jiashuo Jiang

New York University, Department of Information, Operations, and Management Sciences, Students ( email )

New York, NY
United States

Shixin Wang (Contact Author)

New York University, Department of Information, Operations, and Management Sciences, Students ( email )

New York, NY
United States

Jiawei Zhang

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
121
Abstract Views
699
rank
269,402
PlumX Metrics