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Newsvendor with multiple options of expediting

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  • Fu, Ke
  • Xu, Jiayan
  • Miao, Zhaowei
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    Abstract

    We consider a manufacturer facing single period inventory planning problem with uncertain demand and multiple options of expediting. The demand comes at a certain time in the future. The manufacturer may order the product in advance with a relatively low cost. She can order additional amount by expediting after the demand is realized. There are a number of expediting options, each of which corresponds to a certain delivery lead time and a unit procurement price. The unit procurement price is decreasing over delivery lead time. The selling price is also decreasing over time. In this paper, we assume that the manufacturer must deliver all products to the customer in a single shipment. The problem can be formulated as a profit maximization problem. We develop structural properties and show how the optimal solution can be identified efficiently. In addition, we compare our model with the classical newsvendor model and obtain a number of managerial insights.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 226 (2013)
    Issue (Month): 1 ()
    Pages: 94-99

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    Handle: RePEc:eee:ejores:v:226:y:2013:i:1:p:94-99

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Inventory; Newsvendor; Procurement lead times; Expediting; Lead-time-dependent pricing;

    References

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    1. Jian Li & Suresh Chand & Maqbool Dada & Shailendra Mehta, 2009. "Managing Inventory Over a Short Season: Models with Two Procurement Opportunities," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 174-184, April.
    2. Zhu, Stuart X., 2012. "Joint pricing and inventory replenishment decisions with returns and expediting," European Journal of Operational Research, Elsevier, vol. 216(1), pages 105-112.
    3. Vernon Ning Hsu & Chung Yee Lee & Kut C. So, 2006. "Optimal Component Stocking Policy for Assemble-to-Order Systems with Lead-Time-Dependent Component and Product Pricing," Management Science, INFORMS, vol. 52(3), pages 337-351, March.
    4. GĂ©rard P. Cachon & Robert Swinney, 2009. "Purchasing, Pricing, and Quick Response in the Presence of Strategic Consumers," Management Science, INFORMS, vol. 55(3), pages 497-511, March.
    5. Chiang, Chi, 2010. "An order expediting policy for continuous review systems with manufacturing lead-time," European Journal of Operational Research, Elsevier, vol. 203(2), pages 526-531, June.
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    7. Brian Tomlin & Yimin Wang, 2005. "On the Value of Mix Flexibility and Dual Sourcing in Unreliable Newsvendor Networks," Manufacturing & Service Operations Management, INFORMS, vol. 7(1), pages 37-57, June.
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    10. DeYong, Gregory D. & Cattani, Kyle D., 2012. "Well adjusted: Using expediting and cancelation to manage store replenishment inventory for a seasonal good," European Journal of Operational Research, Elsevier, vol. 220(1), pages 93-105.
    11. Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
    12. Tunay I. Tunca & Qiong Wu, 2009. "Multiple Sourcing and Procurement Process Selection with Bidding Events," Management Science, INFORMS, vol. 55(5), pages 763-780, May.
    13. Philip C. Jones & Timothy J. Lowe & Rodney D. Traub & Greg Kegler, 2001. "Matching Supply and Demand: The Value of a Second Chance in Producing Hybrid Seed Corn," Manufacturing & Service Operations Management, INFORMS, vol. 3(2), pages 122-137, April.
    14. Ke Fu & Vernon N. Hsu & Chung-Yee Lee, 2009. "Note--Optimal Component Acquisition for a Single-Product, Single-Demand Assemble-to-Order Problem with Expediting," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 229-236, December.
    15. Xiang Fang & Kut C. So & Yunzeng Wang, 2008. "Component Procurement Strategies in Decentralized Assemble-to-Order Systems with Time-Dependent Pricing," Management Science, INFORMS, vol. 54(12), pages 1997-2011, December.
    16. Duran, Alfonso & Gutierrez, Gil & Zequeira, Romulo I., 2004. "A continuous review inventory model with order expediting," International Journal of Production Economics, Elsevier, vol. 87(2), pages 157-169, January.
    17. Qin, Yan & Wang, Ruoxuan & Vakharia, Asoo J. & Chen, Yuwen & Seref, Michelle M.H., 2011. "The newsvendor problem: Review and directions for future research," European Journal of Operational Research, Elsevier, vol. 213(2), pages 361-374, September.
    18. Ranga V. Ramasesh & J. Keith Ord & Jack C. Hayya & Andrew Pan, 1991. "Sole Versus Dual Sourcing in Stochastic Lead-Time (s, Q) Inventory Models," Management Science, INFORMS, vol. 37(4), pages 428-443, April.
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