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The impact of lead time compression on demand forecasting risk and production cost: A newsvendor model

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  • Jian, Ming
  • Fang, Xin
  • Jin, Liu-qian
  • Rajapov, Azamat

Abstract

Short lead time reduces the exposure of demand forecasting risk, but an additional production cost is incurred to pay it. To solve this trade-off problem, a model is proposed based on classical newsvendor problem with lead time as a controllable variable. In this model, the demand forecasting process and the production cost structure are assumed as general functions with the amount of compressed lead time, respectively. Our investigation shows that under some circumstances, the trade-off problem can be solved and the proposed model can increase the profitability of enterprise. Finally, some numerical examples are given to illustrate the model.

Suggested Citation

  • Jian, Ming & Fang, Xin & Jin, Liu-qian & Rajapov, Azamat, 2015. "The impact of lead time compression on demand forecasting risk and production cost: A newsvendor model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 84(C), pages 61-72.
    • Handle: RePEc:eee:transe:v:84:y:2015:i:c:p:61-72
    DOI: 10.1016/j.tre.2015.10.006
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    Cited by:

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    2. Farkas, Gábor, 2016. "The Connection between the Distance of the Suppliers and the Keeping of the Safety Stock," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2016), Rovinj, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Rovinj, Croatia, 8-9 September 2016, pages 428-433, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    3. Dipak Barman & Gour Chandra Mahata, 2022. "Two-echelon production inventory model with imperfect quality items with ordering cost reduction depending on controllable lead time," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(5), pages 2656-2671, October.
    4. Yi Liao & Ali Diabat & Chaher Alzaman & Yiqiang Zhang, 2020. "Modeling and heuristics for production time crashing in supply chain network design," Annals of Operations Research, Springer, vol. 288(1), pages 331-361, May.
    5. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2016. "Delivery leadtime and channel structure decisions for make-to-order duopoly under different game scenarios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 87(C), pages 113-129.
    6. He, Juan & Ma, Chao & Pan, Kai, 2017. "Capacity investment in supply chain with risk averse supplier under risk diversification contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 106(C), pages 255-275.

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