Inventory Control with Advance Demand Information When Demand is Intermittent

Abstract

In this paper we study a manufacturer-retailer relationship from the perspective of the manufacturer. The problem is managing the inventory of the manufacturer when Advance Demand Information (ADI) is available from the retailer. ADI allows the retailer to signal the manufacturer that there will be a demand, of the signaled size, in a future period. This is coupled with the situation where the manufacturer gets intermittent orders from the retailer. This intermittence may be because of the ordering policy of the retailer, or the nature of the product. Because of this demand structure the manufacturer's replenishment policy is assumed to be a “High-Low” base stock policy. A parsimonious Markov chain model of the intermittent demand with ADI is presented. We observe that a high-low policy is less costly than a one-parameter base-stock policy and that ADI increases the supply chain efficiency by reducing the cost of the manufacturer.