Topic: Dynamic Inventory Pooling Policies to Deliver Differentiated Service
Speaker: Zheng Zhichao, Singapore Management University
Time: 14:00, Jun. 26 2014
Location: Room 216, School of Management
Abstract: Inventory pooling is an important operational strategy that has been widely used in the industries to match supply with demand. However, effective implementation of this strategy can be challenging. A major problem is to integrate the heterogeneous service level requirements of different customers into the inventory pooling model, to determine the minimum inventory level required and the associated allocation policy, using a common stock of inventory.
We consider both Type 1 (stock out probability) and Type 2 (fill rate) service level requirement. We derive a set of necessary conditions on the optimal inventory level needed to meet customized service level requirement for each customer. For a system with fill rate (Type 2) service requirements, we prove that the necessary conditions are also sufficient using Blackwell’s Approachability Theorem. This allows us to show that the optimal inventory needed is at most a small constant above the theoretical minimum, demonstrating the full benefits of inventory pooling in this setting. These results hold for arbitrary demand distribution and correlation.
For system with stock out probability (Type 1) requirements, we derive bounds on the optimal pooled inventory needed, and develop efficient policies to allocate the pooled inventory among the customers. Numerical studies show that our allocation policy can accurately deliver the desired service levels to different customers using the minimal level of common inventory.
Finally, we use these results to show that a pricing schedule based on actual fill rate performance can be used to allocate the profits in the centralized system to all members of the supply chain, leading to a Pareto improvement over the traditional supply chains using wholesale-price-only contracts.
Short Bio: Zhichao Zheng is an Assistant Professor of Operations Management at the Singapore Management University. His current research interests lie in the area of prediction and planning under uncertainty. He applies his research in various industrial domains, including healthcare operations management, spare parts logistics service planning and contracting, maritime scheduling, etc. He received his BS (First Class Honors) in Applied Mathematics from the National University of Singapore in 2009 with minor in Management, and Ph.D. in Management from the Department of Decision Science in the National University of Singapore.
