Publication Type

Journal Article

Version

submittedVersion

Publication Date

4-2018

Abstract

Resource pooling strategies have been widely used in industry to match supply with demand. However, effective implementation of these strategies can be challenging. Firms need to integrate the heterogeneous service level requirements of different customers into the pooling model and allocate the resources (inventory or capacity) appropriately in the most effective manner. The traditional analysis of inventory pooling, for instance, considers the performance metric in a centralized system and does not address the associated issue of inventory allocation. Using Blackwell’s Approachability Theorem, we derive a set of necessary and sufficient conditions to relate the fill rate requirement of each customer to the resources needed in the system. This provides a new approach to studying the value of resource pooling in a system with differentiated service requirements. Furthermore, we show that with “allocation flexibility,” the amount of safety stock needed in a system with independent and identically distributed demands does not grow with the number of customers but instead diminishes to zero and eventually becomes negative as the number of customers grows sufficiently large. This surprising result holds for all demand distributions with bounded first and second moments.

Keywords

Blackwell's Approachability Theorem, Inventory Pooling, Service Levels, Fill Rates

Discipline

Business | Operations and Supply Chain Management

Research Areas

Operations Management

Publication

Management Science

Volume

64

Issue

4

First Page

1555

Last Page

1573

ISSN

0025-1909

Identifier

10.1287/mnsc.2016.2674

Publisher

INFORMS

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1287/mnsc.2016.2674

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