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Managing inventories with one-way substitution: A newsvendor analysis

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  • Deflem, Yannick
  • Van Nieuwenhuyse, Inneke

Abstract

This paper presents an insightful approach to analyze two-item periodic inventory systems with one-way substitution. The objective is to minimize the expected total cost per period, which consists of expected purchasing costs, expected inventory holding costs, expected shortage costs, and expected adjustment costs. This approach helps derive the optimality conditions in both single-period and infinite horizon settings and yields useful insights into the impact of substitution on the service level, the optimality of a borderline case in which the order-up-to level of the inflexible item is reduced to zero, and the pivotal role of the purchasing cost.

Suggested Citation

  • Deflem, Yannick & Van Nieuwenhuyse, Inneke, 2013. "Managing inventories with one-way substitution: A newsvendor analysis," European Journal of Operational Research, Elsevier, vol. 228(3), pages 484-493.
    • Handle: RePEc:eee:ejores:v:228:y:2013:i:3:p:484-493
    DOI: 10.1016/j.ejor.2013.02.003
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    Cited by:

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    2. Transchel, Sandra, 2017. "Inventory management under price-based and stockout-based substitution," European Journal of Operational Research, Elsevier, vol. 262(3), pages 996-1008.
    3. Dong, Binwei & Ren, Yufei & McIntosh, Christopher, 2023. "A co-opetitive newsvendor model with product substitution and a wholesale price contract," European Journal of Operational Research, Elsevier, vol. 311(2), pages 502-514.
    4. Baloch, Gohram & Gzara, Fatma, 2020. "Capacity and assortment planning under one-way supplier-driven substitution for pharmacy kiosks with low drug demand," European Journal of Operational Research, Elsevier, vol. 282(1), pages 108-128.
    5. Silbermayr, Lena, 2020. "A review of non-cooperative newsvendor games with horizontal inventory interactions," Omega, Elsevier, vol. 92(C).
    6. Zhang, Juliang & Deng, Lan & Liu, Huimin & Cheng, T.C.E., 2022. "Which strategy is better for managing multi-product demand uncertainty: Inventory substitution or probabilistic selling?," European Journal of Operational Research, Elsevier, vol. 302(1), pages 79-95.
    7. Shin, Hojung & Park, Soohoon & Lee, Euncheol & Benton, W.C., 2015. "A classification of the literature on the planning of substitutable products," European Journal of Operational Research, Elsevier, vol. 246(3), pages 686-699.
    8. Chen, Xu & Feng, Youyi & Keblis, Matthew F. & Xu, Jianjun, 2015. "Optimal inventory policy for two substitutable products with customer service objectives," European Journal of Operational Research, Elsevier, vol. 246(1), pages 76-85.
    9. Larissa Janssen & Jürgen Sauer & Thorsten Claus & Alfred Wulff, 2017. "Abfallreduktion im Lebensmitteleinzelhandel mittels einer internen Warenumverteilung [Waste reduction in a retail food chain via a internal transfer of goods]," NachhaltigkeitsManagementForum | Sustainability Management Forum, Springer, vol. 25(1), pages 109-116, June.
    10. Freeman, Nickolas K. & Narayanan, Arunachalam & Keskin, Burcu B., 2021. "Optimal use of downward substitution in a manufacturing operation subject to uncertainty," Omega, Elsevier, vol. 103(C).

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