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A Bayesian approach to determine the value of information in the newsboy problem

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  • Lee, Chih-Ming
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    Abstract

    The potential benefits of demand forecasting in a newsboy problem are to decrease the risk of overstocking or shortage, but forecasting is usually not free. In this paper, a model to help the decision-maker in a newsboy problem to assess the value of information is presented. First, two cases on available demand information are considered to develop an upper bound of the cost that the decision-maker would spend on forecasting. Then, a Bayesian approach to forecasting is proposed and EVAI, the expected value of additional information, is computed to help the decision-maker in deciding whether to use the extra information. Finally, the relationship between the EVAI and model parameters is discussed.

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    File URL: http://www.sciencedirect.com/science/article/B6VF8-4NMC880-4/1/ddbc7d6528fe5090840a4925e5e28cad
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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 112 (2008)
    Issue (Month): 1 (March)
    Pages: 391-402

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    Handle: RePEc:eee:proeco:v:112:y:2008:i:1:p:391-402

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

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    1. Wallace B. Crowston & Warren H. Hausman & William R. Kampe, II, 1973. "Multistage Production for Stochastic Seasonal Demand," Management Science, INFORMS, vol. 19(8), pages 924-935, April.
    2. George R. Murray, Jr. & Edward A. Silver, 1966. "A Bayesian Analysis of the Style Goods Inventory Problem," Management Science, INFORMS, vol. 12(11), pages 785-797, July.
    3. Alfares, Hesham K. & Elmorra, Hassan H., 2005. "The distribution-free newsboy problem: Extensions to the shortage penalty case," International Journal of Production Economics, Elsevier, vol. 93(1), pages 465-477, January.
    4. Mostard, Julien & de Koster, Rene & Teunter, Ruud, 2005. "The distribution-free newsboy problem with resalable returns," International Journal of Production Economics, Elsevier, vol. 97(3), pages 329-342, September.
    5. Hill, Roger M., 1997. "Applying Bayesian methodology with a uniform prior to the single period inventory model," European Journal of Operational Research, Elsevier, vol. 98(3), pages 555-562, May.
    6. 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.
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    Cited by:
    1. Celik, Nurcin & Son, Young-Jun, 2011. "State estimation of a shop floor using improved resampling rules for particle filtering," International Journal of Production Economics, Elsevier, vol. 134(1), pages 224-237, November.
    2. Langenberg, Kerstin U. & Seifert, Ralf W. & Tancrez, Jean-S├ębastien, 2012. "Aligning supply chain portfolios with product portfolios," International Journal of Production Economics, Elsevier, vol. 135(1), pages 500-513.

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