Modelling imperfect advance demand information and analysis of optimal inventory policies

Abstract

We consider an inventory control problem where it is possible to collect some imperfect information on future demand. We refer to such information as imperfect Advance Demand Information (ADI), which may occur in different forms of applications. A simple example is a company that uses sales representatives to market its products, in which case the collection of sales representatives' information as to the number of customers interested in a product can generate an indication about the future sales of that product, hence it constitutes imperfect ADI. Other applications include internet retailing, Vendor Managed Inventory (VMI) applications and Collaborative Planning, Forecasting, and Replenishment (CPFR) environments. We develop a model that incorporates imperfect ADI with ordering decisions. Under our system settings, we show that the optimal policy is of order-up-to type, where the order level is a function of imperfect ADI. We also provide some characterizations of the optimal solution. We develop an expression for the expected cost benefits of imperfect ADI for the myopic problem. Our analytical and empirical findings reveal the conditions under which imperfect ADI is more valuable.

Safety stock or safety lead time: coping with unreliability in demand and supply

“…This outcome is again in line with earlier findings (e.g. Bourland et al 1996, Tan et al 2007). In general, holding a safety stock is found to be more effective than buffering in a safety lead time in coping with ADI unreliability.…”

“…The papers that do study demand uncertainty relate uncertainty to due-date setting (Tan et al 2007), order cancellations (Thonemann 2002, Tan et al 2007), incomplete order data on product type (Thonemann 2002) or partial schedules, where part of the orders are still unknown . We could only find the combination of variability in supply and unreliability in demand in papers by Hu et al (2003Hu et al ( , 2004 and by Toktay and Wein (2001).…”

“…Product ADI concerns the amount, the product type or the timing, and reduces demand uncertainty. ADI becomes more beneficial when its unreliability is reduced (Tan et al 2007). Greater accuracy in demand information can reduce the need for inventory (e.g.…”

Performance analysis of supply chains under customer demand information sharing using role play game

“…If it is certainly going to happen then it is called perfect ADI, otherwise it is called as imperfect ADI. It may be generated through internet retailing or from sales representatives (Tan et al, 2007).…”

Evaluating vendor-managed inventory (VMI) in non-traditional environments using simulation

“…The model created by Tan et al (2007) also indicated that the optimal ordering policy is also an order-up-to system based on the kind of demand information supplied by a VMI system. Yao et al (2007) also evaluated the effect of implementing VMI on inventory-carrying costs.…”