Computation of order and volume fill rates for a base stock inventory control system with heterogeneous demand to investigate which customer class gets the best service

We consider a base stock inventory control system serving two customer classes whose demands are generated by two independent compound renewal processes. We show how to derive order and volume fill rates of each class. Based on assumptions about first order stochastic dominance we prove when one customer class will get the best service. That theoretical result is validated through a series of numerical experiments which also reveal that it is quite robust.Base stock policy; service measures; two customer classes; compound renewal processes

Basics of inventory management (Part 6: The (R,s,S)-model)

Inventory Models;management science

Inventories and sales uncertainty

We investigate the empirical linkages between sales uncertainty and firms´ inventory investment behavior while controlling for firms´ financial strength. Using large panels of manufacturing firms from several European countries we find that higher sales uncertainty leads to larger stocks of inventories. We also identify an indirect effect of sales uncertainty on inventory accumulation through the financial strength of firms. Our results provide evidence that financial strength mitigates the adverse effects of uncertainty

A short note on the problematic concept of excess demand in asset pricing models with mean-variance optimization

Referring to asset pricing models where demand is proportional to excess returns and said to be derived from a mean-variance optimization problem, the note formulates what probably is common knowledge but hardly ever made an explicit subject of discussion. This is an insufficient distinction between the desired holding of the risky asset on the part of the speculative agents, which is the solution to the optimization problem and usually directly presented as excess demand, and the desired change in this holding, which is what should reasonably constitute the excess demand on the market. The note arrives at the conclusion that in models with a market maker the story of the maximization of expected wealth should be dropped

Inventories and sales uncertainty

We investigate the empirical linkages between sales uncertainty and firms´ inventory investment behavior while controlling for firms´ financial strength. Using large panels of manufacturing firms from several European countries we find that higher sales uncertainty leads to larger stocks of inventories. We also identify an indirect effect of sales uncertainty on inventory accumulation through the financial strength of firms. Our results provide evidence that financial strength mitigates the adverse effects of uncertainty

Copper and the negative price of storage

Commodities are often stored during periods in which storage returns a negative price. Further, during periods of"backwardation,"the expected revenue from holding inventories will be negative. Since the 1930s, the negative price of storage has been attributed to an offsetting"convenience yield."It has been argued that inventories are a necessary adjunct to business and that increasing inventories from some minimal level reduces overall costs. This theory has always been criticized by proponents of cost-of-carry models, who argue that a negative price for storage creates arbitrage opportunities. Proponents of the cost-of-carry model have asserted that storage will occur only with positive returns. They offer a set of price-arbitrage conditions that associate negative returns with stockouts. Still, stockouts are rare in commodity markets, and storage appears to take place during periods of"backwardation"in apparent violation of the price-arbitrage conditions. For copper, inventories have always been available to the market regardless of the price of storage. The author argues that although inventories may provide a cost-reducing convenience yield, inventories also have value because of uncertainty. Just as the price of a call option contains a premium based on price variability, so the shadow price of inventories contains a dispersion premium associated with the unplanned component of inventories. The author derives a generalized price-arbitrage condition in which either a convenience and/or a dispersion premium may justify inventory holding even during an expected price fall. He uses monthly observations of U.S. producer inventories to estimate the parameters of the price-arbitrage condition. The estimates and simulations he presents are ambiguous with regard to the existence of a convenience yield but strongly support the notion of a dispersion premium for copper. And although the average value of such a premium is low, the value of the premium increases rapidly during periods when inventories are scarce.Environmental Economics&Policies,Common Carriers Industry,Markets and Market Access,Access to Markets,Economic Theory&Research

The impact of nonlinear dynamics on the resilience of a grocery supply chain

Purpose of this paper: In an effort to improve operational and logistical efficiencies, UK grocery retailers combined primary and secondary distribution increasing the importance of designing resilient replenishment systems in the distribution centre. This paper has the purpose to analyse the resilience performance of the distribution centre stock ordering system within a grocery retailer. Design/methodology/approach: A system dynamics approach is used for framing and building a credible representation of the real system. Mathematical analysis of the nonlinear model based on nonlinear control engineering techniques in combination with system dynamics simulation have been used to understand the behaviour of stock and shipment output responses in the distribution centre given step and periodic demand signals. Findings: Preliminary mathematical analysis through nonlinear control theory techniques has been undertaken in order to gain initial insights in the understanding of the replenishment control model. This practice allowed the researcher to identify specific behaviour change in the DC stock and shipment responses, which are key indicators for assessing supply chain resilience, without going through a time-consuming simulation process. Transfer function analysis and describing function serve as a guideline for undertaking system dynamics simulation. Value: This paper aims to fill the gap in the literature of supply chain resilience by using quantitative system dynamics methods to assess the resilience performance of a grocery retailer. In this way, we also supplement the literature with empirical data. Moreover, we explore different analytical methods since simulation is the predominant method for quantitative analysis of system dynamics. Research limitations/implications (if applicable): This research is limited to the dynamics of single-echelon supply chain systems. Although the EPOS sales data and the store replenishment system have been considered in the validation process, this study has focused on analysing the resilience performance of the DC replenishment system only. Considering the multi-echelon supply chain is intended for further research activities. Practical implications (if applicable): The findings suggest that the distribution centre replenishment system can be re-designed in order to improve the supply chain resilience performance. The ‘As Is’ scenario produces slow response of stock levels and inventory targets are never recovered due to a permanent offset