Abstract
The rapidly developing global market place has made the industrial environment more competitive. As a result, the last decade has seen a growing interest in logistics and supply chain management in order to reduce cost and improve responsiveness to uncertain customer demand across the supply chain. The flow of business, such as information and logistics, is improved from the viewpoint of the whole supply chain also including the customer, and it becomes a target to perform optimal response as a whole system. Inventory policy, especially, is crucial to all retailers and suppliers. Recent research trends in inventory management and supply chain management have also focused on the impact of customer behavior on the system or chain of interest. In a recent paper, Lee & Whang identified four common sources of information distortion that lead to the well-known "bullwhip effect". On the other hand, Cheung & Zhang focused on another source of demand information distortion : customer order cancellation. In their research, they assume that each unit of cancellation will cost the retailer as an administrative fee. However, it is general to impose a cancellation cost on the customer in such cases that the retailer has suffered heavy damage from customer order cancellations. From this viewpoint, in this study we discuss the effect on (s, S)inventory policy from customer order cancellations under the assumption that the cancellation cost will be incurred by the customer.
