Inventory pooling (sharing) is a well-known strategy for reducing the negative effect of
demand uncertainty. As a risk-pooling strategy, its rationale is analogous to those of banking and
insurance. Recently there has been interest in extending the idea of inventory pooling to independent
firms, such as airlines using the same hub deciding to pool spare parts that are needed only rarely.
We consider the effectiveness of partial inventory pooling, whereby only a certain proportion of the
inventory is pooled. We make use of a scheme, previously proposed in the context of complete
inventory pooling, where each firm contributes to a pool, as well as ordering for itself. A firm then has
priority for units it contributed to the pool, but the units it does not need become available to the other
firm, possibly at cost. We analyze the resulting non-cooperative game. We consider an example with
discrete independent demands, and then explore a symmetric continuous independent demands model,
eventually specialized to uniform distributions.
This work is joint with Dr. Lena Silbermayr of WU Vienna.
Yigal Gerchak is Professor in the Department of Industrial Engineering of Tel-Aviv University. Earlier he
was at the Department of Management Sciences of the University of Waterloo. He is interested in
auctions and principal-agent models, in addition to stochastic inventory models. He is currently
conducting research at Laurier with Professor D. Marc Kilgour.
Contact at the MS2Discovery Research Institute: Marc Kilgour (Host of the speaker, Tecton 6)
Refreshments will be provided