publication . Other literature type . Article . 2004

Stack Them High, Let 'em Fly: Lot-Sizing Policies When Inventories Stimulate Demand

Balakrishnan, A.; Michael Pangburn; Stavrulaki, E.;
Open Access
  • Published: 01 May 2004
  • Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
In some retail contexts, stocking large quantities of inventory may not only improve service levels, but can also stimulate demand. For products having demand rates that increase with inventory levels, we analyze the effect of stocking decisions on firm profitability to develop managerial insights regarding the structure of the optimal inventory policy, and to understand how this policy differs from traditional approaches. When inventories stimulate demand, iteratively applying the standard economic order quantity (EOQ) model--by setting the demand rate parameter equal to the observed average demand rate in prior cycles--yields an equilibrium order quantity that...
free text keywords: retail inventory management, inventory-dependent demand, lot-sizing, economic order quantity, inventory replenishment strategies
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