Inventory Allocation in the Presence of Service‐Level Agreements

Inventory Allocation in the Presence of Service‐Level Agreements Retailers often use service‐level agreements (SLAs) to evaluate their supplier's performance. Based on an examination of 70 SLAs from practice, we conclude that in terms of evaluating fill rate, these SLAs vary in at least three key dimensions: (i) Supplier performance can be evaluated for each demand request or over some longer horizon, (ii) the acceptable fill rate can be 100% or something less than 100%, and (iii) the non‐compliance charge can be a flat fee, a per‐unit‐short fee, or both. For a supplier operating a periodic‐review inventory system and serving multiple retailers, each with an SLA, we investigate the impact of inventory allocation rules on SLA compliance and expected non‐compliance costs across the three dimensions of review horizon, fill rate target and non‐compliance cost structure. We derive several analytic results when retailers are symmetric. For the single‐period setting and a fill rate target of 100%, we characterize the optimal allocation rule and rank other rules common in practice and the literature. We also characterize the optimal rule for the single‐period setting when the fill rate target is less than 100% and the SLA specifies a flat‐fee non‐compliance charge. In the multiple‐period case, we characterize the optimal rule when the fill rate target is 100%. When the fill rate target is less than 100% and the performance review horizon is more than one period, we develop a simple heuristic that outperforms common allocation rules. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Production and Operations Management Wiley

Inventory Allocation in the Presence of Service‐Level Agreements

Loading next page...
 
/lp/wiley/inventory-allocation-in-the-presence-of-service-level-agreements-Zg04E65xzU
Publisher
Wiley
Copyright
© 2018 Production and Operations Management Society
ISSN
1059-1478
eISSN
1937-5956
D.O.I.
10.1111/poms.12814
Publisher site
See Article on Publisher Site

Abstract

Retailers often use service‐level agreements (SLAs) to evaluate their supplier's performance. Based on an examination of 70 SLAs from practice, we conclude that in terms of evaluating fill rate, these SLAs vary in at least three key dimensions: (i) Supplier performance can be evaluated for each demand request or over some longer horizon, (ii) the acceptable fill rate can be 100% or something less than 100%, and (iii) the non‐compliance charge can be a flat fee, a per‐unit‐short fee, or both. For a supplier operating a periodic‐review inventory system and serving multiple retailers, each with an SLA, we investigate the impact of inventory allocation rules on SLA compliance and expected non‐compliance costs across the three dimensions of review horizon, fill rate target and non‐compliance cost structure. We derive several analytic results when retailers are symmetric. For the single‐period setting and a fill rate target of 100%, we characterize the optimal allocation rule and rank other rules common in practice and the literature. We also characterize the optimal rule for the single‐period setting when the fill rate target is less than 100% and the SLA specifies a flat‐fee non‐compliance charge. In the multiple‐period case, we characterize the optimal rule when the fill rate target is 100%. When the fill rate target is less than 100% and the performance review horizon is more than one period, we develop a simple heuristic that outperforms common allocation rules.

Journal

Production and Operations ManagementWiley

Published: Jan 1, 2018

Keywords: ; ; ;

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off