Operational Impact of Stockout Service Level in Dynamic Inventory System


  • Yanzhi David LI (Principal Investigator)Department of Management Sciences
  • Xiuli CHAO (Co-Investigator)
  • Ye LU (Co-Investigator)


When customers often experience stockout in a store, they will switch to other stores for a better service. This intuition is verified by empirical studies that have shown that stockout service level affects future demand. However, the vast literature on inventory control has largely ignored this effect. In this project, we investigate the impact of the stockout service level on the firm’s profit and its operational policies. We consider a periodic review inventory system in which demand in a period is encouraged by good service levels in previous periods. We want to investigate how the optimal inventory control policies for inventory systems with stockout-dependent demand differentiate from those for the classic inventory models without stockout effect. We try to offer insights on how to effectively manage these systems. We also want to identify market conditions under which the firm’s profit loss due to neglecting stockout-dependent demand is most significant.


Project number 9042563
Status Active
Effective start/end date 1/09/17 -> …