Inventory problems with heterogeneous customers and endogenous demand

Inventory theory is considered one of the original topics in operations management/operations research. Two standard assumptions, homogeneity of customers and exogeneity of demand, are present in the majority of inventory-related academic research. Customers in most practical applications may not be homogeneous as they are affected differently by taste, prices, lead time, service quality, return conditions and other factors. As a result, the retailer faces endogenous demand, as the offered product may not be acceptable for some customers. The decision problems considered here are similar to the decisions of the classical inventory theory, with customer choices present in the environment. This paper names these as inventory problems with heterogeneous customers and endogenous demand. This monograph aims to review the contributions of inventory problems with heterogeneous customers and endogenous demand for a single product. The focal point of the overview is to emphasize the role of considering demand endogeneity for decision-making in inventory systems. The contents include an overview of the issues regarding the use of direct utility functions for customers, a review of the relevant literature, a summary of the possible approaches to solving inventory-related problems with heterogeneous customers and a sketch of three standard inventory models reworked to consider heterogeneous customers. These models are the economic order quantity model, the newsvendor model and the (S−1,S) base-stock model.