Using imperfect advance demand information in lost-sales inventory systems with the option of returning inventory

E. Topan, T. Tan, G.J.J.A.N. van Houtum, R. Dekker

Research output: Contribution to journalArticleAcademicpeer-review

4 Citations (Scopus)
51 Downloads (Pure)

Abstract

Motivated by real-life applications, we consider an inventory system where it is possible to collect information about the quantity and timing of future demand in advance. However, this advance demand information (ADI) is imperfect because (i) it may turn out to be false, (ii) a time interval is provided for the demand occurrences rather than its exact time and (iii) there are yet customer demand occurrences for which ADI cannot be provided. To make best use of imperfect information and integrate it with inventory supply decisions, we allow for returning excess stock built up due to imperfectness to upstream supplier and we propose a lost-sales inventory model with a general representation of imperfect ADI. A partial characterization of the optimal ordering and returning policy is provided. Through an extensive numerical study we investigate the value of ADI and factors that affect that value. We show that using imperfect ADI can yield substantial savings, the amount of savings being sensitive to the quality of information; the benefit of the ADI increases considerably if the excess stock can be returned. We apply our model to a spare parts case. The value of imperfect ADI turns out to be significant.
Original languageEnglish
Pages (from-to)246-264
Number of pages19
JournalIISE Transactions
Volume50
Issue number3
DOIs
Publication statusPublished - 2018

Fingerprint

Sales

Keywords

  • Value of information
  • Imperfect advance demand information
  • Returning excess inventory to upstream
  • Lost-sales
  • Inventory

Cite this

@article{83c431d0fcf54e0f9a7115b999697d9a,
title = "Using imperfect advance demand information in lost-sales inventory systems with the option of returning inventory",
abstract = "Motivated by real-life applications, we consider an inventory system where it is possible to collect information about the quantity and timing of future demand in advance. However, this advance demand information (ADI) is imperfect because (i) it may turn out to be false, (ii) a time interval is provided for the demand occurrences rather than its exact time and (iii) there are yet customer demand occurrences for which ADI cannot be provided. To make best use of imperfect information and integrate it with inventory supply decisions, we allow for returning excess stock built up due to imperfectness to upstream supplier and we propose a lost-sales inventory model with a general representation of imperfect ADI. A partial characterization of the optimal ordering and returning policy is provided. Through an extensive numerical study we investigate the value of ADI and factors that affect that value. We show that using imperfect ADI can yield substantial savings, the amount of savings being sensitive to the quality of information; the benefit of the ADI increases considerably if the excess stock can be returned. We apply our model to a spare parts case. The value of imperfect ADI turns out to be significant.",
keywords = "Value of information, Imperfect advance demand information, Returning excess inventory to upstream, Lost-sales, Inventory",
author = "E. Topan and T. Tan and {van Houtum}, G.J.J.A.N. and R. Dekker",
year = "2018",
doi = "10.1080/24725854.2017.1403060",
language = "English",
volume = "50",
pages = "246--264",
journal = "IISE Transactions",
issn = "2472-5854",
publisher = "Informa UK Limited",
number = "3",

}

Using imperfect advance demand information in lost-sales inventory systems with the option of returning inventory. / Topan, E.; Tan, T.; van Houtum, G.J.J.A.N.; Dekker, R.

In: IISE Transactions, Vol. 50, No. 3, 2018, p. 246-264.

Research output: Contribution to journalArticleAcademicpeer-review

TY - JOUR

T1 - Using imperfect advance demand information in lost-sales inventory systems with the option of returning inventory

AU - Topan, E.

AU - Tan, T.

AU - van Houtum, G.J.J.A.N.

AU - Dekker, R.

PY - 2018

Y1 - 2018

N2 - Motivated by real-life applications, we consider an inventory system where it is possible to collect information about the quantity and timing of future demand in advance. However, this advance demand information (ADI) is imperfect because (i) it may turn out to be false, (ii) a time interval is provided for the demand occurrences rather than its exact time and (iii) there are yet customer demand occurrences for which ADI cannot be provided. To make best use of imperfect information and integrate it with inventory supply decisions, we allow for returning excess stock built up due to imperfectness to upstream supplier and we propose a lost-sales inventory model with a general representation of imperfect ADI. A partial characterization of the optimal ordering and returning policy is provided. Through an extensive numerical study we investigate the value of ADI and factors that affect that value. We show that using imperfect ADI can yield substantial savings, the amount of savings being sensitive to the quality of information; the benefit of the ADI increases considerably if the excess stock can be returned. We apply our model to a spare parts case. The value of imperfect ADI turns out to be significant.

AB - Motivated by real-life applications, we consider an inventory system where it is possible to collect information about the quantity and timing of future demand in advance. However, this advance demand information (ADI) is imperfect because (i) it may turn out to be false, (ii) a time interval is provided for the demand occurrences rather than its exact time and (iii) there are yet customer demand occurrences for which ADI cannot be provided. To make best use of imperfect information and integrate it with inventory supply decisions, we allow for returning excess stock built up due to imperfectness to upstream supplier and we propose a lost-sales inventory model with a general representation of imperfect ADI. A partial characterization of the optimal ordering and returning policy is provided. Through an extensive numerical study we investigate the value of ADI and factors that affect that value. We show that using imperfect ADI can yield substantial savings, the amount of savings being sensitive to the quality of information; the benefit of the ADI increases considerably if the excess stock can be returned. We apply our model to a spare parts case. The value of imperfect ADI turns out to be significant.

KW - Value of information

KW - Imperfect advance demand information

KW - Returning excess inventory to upstream

KW - Lost-sales

KW - Inventory

U2 - 10.1080/24725854.2017.1403060

DO - 10.1080/24725854.2017.1403060

M3 - Article

VL - 50

SP - 246

EP - 264

JO - IISE Transactions

JF - IISE Transactions

SN - 2472-5854

IS - 3

ER -