Newsvendor with multiple options of expediting
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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