Mitigating Inventory Overstocking: Optimal Order-up-to Level to Achieve a Target Fill Rate over a Finite Horizon

doi:10.1111/poms.12750

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	Mitigating Inventory Overstocking: Optimal Order-up-to Level to Achieve a Target Fill Rate over a Finite Horizon
	Tan, Yinliang (Ricky)1; Paul, Anand A.2; Deng, Qi 3; Wei, Lai 4
刊名	PRODUCTION AND OPERATIONS MANAGEMENT
	2017-11
卷号	26 期号:11 页码:1971-1988
关键词	service level agreement fill rate positive lead time base-stock policy simulation-based optimization
ISSN号	1059-1478
DOI	10.1111/poms.12750
英文摘要	Service level agreements (SLAs) are widely adopted performance-based contracts in operations management practice, and fill rate is the most common performance metric among all the measurements in SLAs. Traditional procedures characterizing the order-up-to level satisfying a specified fill rate implicitly assume an infinite performance review horizon. However, in practice, inventory managers are liable to maintain and report fill rates over a finite performance review horizon. This horizon discrepancy leads to deviation between the target fill rate and actual achieved fill rate. In this study, we first examine the behavior of the fill rate distribution over a finite horizon with positive lead time. We analytically prove that the expected fill rate assuming an infinite performance review horizon exceeds the expected fill rate assuming a finite performance review horizon, implying that there exists some inventory "waste" (i.e., overstocking) when the traditional procedure is used. Based on this observation and the complexity of the problem, we propose a simulation-based algorithm to reduce excess inventory while maintaining the contractual target fill rate. When the lead time is significant relative to the length of the contract horizon, we show that the improvement in the inventory system can be over 5%. Further, we extend our basic setting to incorporate the penalty for failing to meet a target, and show how one can solve large-scale problems via stochastic approximation. The primary managerial implication of our study is that ignoring the performance review horizon in an SLA will cause overstocking, especially when the lead time is large.
WOS研究方向	Engineering ; Operations Research & Management Science
语种	英语
出版者	WILEY
WOS记录号	WOS:000415886000002
内容类型	期刊论文
源URL	[http://10.2.47.112/handle/2XS4QKH4/854]
专题	上海财经大学
作者单位	1.Tulane Univ, AB Freeman Sch Business, New Orleans, LA 70118 USA; 2.Univ Florida, Warrington Coll Business Adm, Dept Informat Syst & Operat Management, Gainesville, FL 32611 USA; 3.Shanghai Univ Finance & Econ, Sch Informat Management & Engn, Res Inst Interdisciplinary Sci, Shanghai 200433, Peoples R China; 4.Shanghai Jiao Tong Univ, Antai Coll Econ & Management, Shanghai 200030, Peoples R China
推荐引用方式 GB/T 7714	Tan, Yinliang ,Paul, Anand A.,Deng, Qi,et al. Mitigating Inventory Overstocking: Optimal Order-up-to Level to Achieve a Target Fill Rate over a Finite Horizon[J]. PRODUCTION AND OPERATIONS MANAGEMENT,2017,26(11):1971-1988.
APA	Tan, Yinliang ,Paul, Anand A.,Deng, Qi,&Wei, Lai.(2017).Mitigating Inventory Overstocking: Optimal Order-up-to Level to Achieve a Target Fill Rate over a Finite Horizon.PRODUCTION AND OPERATIONS MANAGEMENT,26(11),1971-1988.
MLA	Tan, Yinliang ,et al."Mitigating Inventory Overstocking: Optimal Order-up-to Level to Achieve a Target Fill Rate over a Finite Horizon".PRODUCTION AND OPERATIONS MANAGEMENT 26.11(2017):1971-1988.