Onder Bulut and Murat Fadiloglu. A Dynamic Rationing Policy for Continuous-Review Inventory Systems

Abstract. Stock rationing is an inventory policy that allows differential treatment of customer classes with-out using separate inventories. Rationing enables the inventory system to maintain high service levels for certain classes while keeping inventory costs at bay by providing lower service levels to certain other demand classes.
In this work, we propose a new dynamic rationing policy, called rationing with exponential replenishment flow, along with the associated dynamic priority clearing mechanism for continuous-review backordering systems. Our policy utilizes the information on the status of the outstanding replenishment orders. Specifically, the policy incorporates the outstanding replenishment orders into the on-hand inventory as if they arrive continuously within the lead-time. For both backordering and lost sales environments, we conduct simulation studies to compare the performance of the dynamic policy with the static critical level and the common stock policies and quantify the gain obtained. We discuss the conditions under which stock rationing –both dynamic and static– is beneficial and assess the relative value of the dynamic policy.  
We also provide an analytical analysis of the dynamic policy under constant lead-time, and unit Poisson demands for two demand classes using at-most-one-outstanding-order assumption and derive service levels for both demand classes.