How Much Demand Should Be Fulfilled?

Authors:
Amar Sapra;Van-Anh Truong;Rachel Q. Zhang
Affiliations:
Indian Institute of Management Bangalore, Bangalore, India;School of Operations Research and Information Engineering, Cornell University, Ithaca, New York 14853;Department of Industrial Engineering and Engineering Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong
Venue:
Operations Research
Year:
2010

Citing 13
Cited 0

Scarf's state reduction method, flexibility, and a dependent demand inventory model

Operations Research
Optimal centralized ordering policies in multi-echelon inventory systems with correlated demands

Management Science
Myopic policies for some inventory models with uncertain demand distributions

Management Science
Inventory control in a fluctuating demand environment

Operations Research
Information distortion in a supply chain: the bullwhip effect

Management Science - Special issue on frontier research in manufacturing and logistics
Analysis of a Forecasting-Production-Inventory System with Stationary Demand

Management Science
The Value of Information Sharing in a Two-Level Supply Chain

Management Science
Optimal Policies and Approximations for a Serial Multiechelon Inventory System with Time-Correlated Demand

Operations Research
Introduction to the Special Issue on Marketing and Operations Management Interfaces and Coordination

Management Science
"Stack Them High, Let 'em Fly": Lot-Sizing Policies When Inventories Stimulate Demand

Management Science
Approximate Solutions of a Dynamic Forecast-Inventory Model

Manufacturing & Service Operations Management
Inventory Planning with Forecast Updates: Approximate Solutions and Cost Error Bounds

Operations Research
A Supply Chain Model with Reverse Information Exchange

Manufacturing & Service Operations Management

Quantified Score

Hi-index	0.00

Visualization

Abstract

We study the inventory replenishment of a product whose demand can be manipulated by restricting the supply. This research is motivated by a novel marketing tactic employed by manufacturers of fashion and luxury items. Such a tactic combines innovative marketing with deliberate understocking in an attempt to create shortages (i.e., waitlists) that add to the allure and sense of exclusivity of a product and stimulate its demand. We model the problem as a finite-horizon, periodic-review system where demand in each period is a decreasing function of the net ending inventory in the previous period. Although the optimal structure can be complex in general, under certain conditions we are able to characterize the optimal policy as a state-dependent, monotone, base-stock policy. We compare this policy with the optimal policy for the case in which demand is independent of the net inventory. We also show that understocking is optimal in various scenarios. We then propose a novel strategy, called the inventory-withholding strategy, to further explore the wait-list effect by making customers wait even when there is inventory on hand to satisfy them. Our numerical experiments study the impact of various model parameters in combination with the wait-list effect on the optimal policy and the corresponding expected profits.