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COORDINATED INVENTORY PLANNING FOR NEW AND OLD PRODUCTS UNDER WARRANTY

Published online by Cambridge University Press:  27 February 2007

Wei Huang ,
Vidhyadhar Kulkarni  and
Jayashankar M. Swaminathan
Wei Huang
Affiliation:
Department of Statistics and Operations Research, University of North Carolina, Chapel Hill, NC 27599, E-mail: Wei.Huang@sas.com
Vidhyadhar Kulkarni
Affiliation:
Department of Statistics and Operations Research, University of North Carolina, Chapel Hill, NC 27599, E-mail: vkulkarn@email.unc.edu
Jayashankar M. Swaminathan
Affiliation:
Department of Statistics and Operations Research, University of North Carolina, Chapel Hill, NC 27599 and The Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599, E-mail: msj@unc.edu
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Abstract

In this article we study a firm that is facing demand from two sources: demand for new items and demand to replace failed items under warranty. We model this setting as a multiperiod single-product inventory problem where the demands for new items in different periods are independent and the demands for replacing failed items depend on the number of the items under warranty. We consider backlogging and emergency supply cases and study both discounted-cost and average-cost criteria. We prove the optimality of the w-dependent base stock ordering policy, where the base stock level is a function of w, the number of items currently under warranty. For the special case where the demand for new products is stationary, we prove the optimality of a stationary w-dependent base stock policy for the finite-horizon discounted-cost and the infinite-horizon discounted- and average-cost cases. We compare the integrated inventory policy with the one that neglects demands from items under warranty.

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 21 , Issue 2 , April 2007 , pp. 261 - 287
Copyright
© 2007 Cambridge University Press

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