ERIM Research Clinic: On the Use of Demand Differentiation in Inventory Control

"All customers are equal, but some are more equal than others" is a rephrase of a quote from Orwell and we will investigate its working in the inventory control of finished goods and spare parts. Its consequence is that you do not give some customers goods if you have still some lying around. It can be applied if customers have different service contracts, where you want to give the highest paying customers the highest service. Mathematically, it implies that you control your inventory not only by the inventory position (indicating how many you have but also how many are in the pipeline), but also by the inventory level. Moreover, problems arise with incoming replenishments. Do you reserve them to waiting unimportant customers or to replenish stocks for important customers. We sketch how this field of inventory control has developed, what problems were encountered and what solutions were found.

Papers to be read are:

• Dekker, R., Hill, R.M., Kleijn, M.J. and Teunter, R., (2002), "On the (S-1,S) lost sales inventory model with priority demand classes", Naval Research Logistics 49, p. 593-610. DOI: 10.1002/nav.10032
• Kleijn, M.J. and Dekker, R., (1999), "An overview of inventory systems with several demand classes", in: M. Grazia Speranza and P. Stahly (eds), "New Trends in Distribution Logistics", Lecture Notes in Economics and Mathematical Systems 480, p. 253-266, Springer Verlag, Berlin (available through the ERIM Doctoral Office).