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Optimal Stock Allocation for a Capacitated Supply System

Fuqua School of Business, Duke University, Durham, North Carolina 27708
Department of Industrial Engineering, Koç University, 80910 Sariyer-Istanbul, Turkey
Laboratoire Génie Industriel, Ecole Centrale Paris, Grande Voie des Vignes, 92295 Châtenay-Malabry Cedex, France
fdv1{at}mail.duke.edu
fkaraesmen{at}ku.edu.tr
dallery{at}lgi.ecp.fr

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.

Key Words: Inventory/Production; Stock Allocation; Stochastic: Multi-Class; Queues: Make-to-Stock System
History: Received: September 28, 2001;

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