Optimal Stock Allocation for a Capacitated Supply System

Francis de Véricourt, Fikri Karaesmen, Yves Dallery

Management Science · 2002 · Volume 48 · Issue 11

Abstract

We consider a capacitated supply system that produces a single item that is demanded by several classes of customers. Each customer class may have a different backorder cost, so stock allocation arises as a key decision problem. We model the supply system as a multi customer make-to-stock queue. Using dynamic programming, we show that the optimal allocation policy has a simple and intuitive structure. In addition, we present an efficient algorithm to compute the parameters of this optimal allocation policy. Finally, for a typical supply chain design problem, we illustrate that ignoring the stock allocation dimension—a frequently encountered simplifying assumption—can lead to incorrect managerial decisions.

Keywords

Inventory/Production, Stock Allocation, Stochastic: Multi-Class, Queues: Make-to-Stock System

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