Managing individual customer service constraints under stochastic demand

In recent years management of customer requirements has been the foremost concern of most manufacturers. In this paper, we consider a single-period problem in which the manufacturer faces stochastic demand and individual service level constraints from multiple customers. We present a formulation for the problem that utilizes the structure of the underlying allocation problem and provide an algorithm that generates the optimal procurement quantity under the optimal random allocation policy. For a special case when there are two identical customers and their demand is jointly uniform, we derive an analytical expression for the optimal procurement quantity. (C) 1999 Elsevier Science B.V. All rights reserved.