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A Spreadsheet Approach For Incorporating Actual Motor Carrier Freight Rates And External Environmental Costs In A Newsvendor Model

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  • Andrew Manikas
  • Michael Godfrey

Abstract

The purpose of this paper is to present a model for maximizing a retailer’s total expected profit using actual motor carrier freight rates and estimates of environmental costs associated with the transportation of a seasonal product. It is assumed that a single seasonal product is sold at a fixed price and demand for that product is normally distributed. Prior to the selling season, the retailer must determine how many units of the seasonal product to purchase from the supplier—therefore, the newsvendor model is appropriate for analyzing this problem. It is assumed that the retailer arranges and pays for transportation, i.e., the product is shipped free on board (FOB) Origin, Freight Collect from the supplier. Items unsold at the end of the season can be sold at a reduced price (salvaged). Actual freight rates are incorporated in the model by considering less-than-truckload discounts, fuel surcharges for both less-than-truckload (LTL) and truckload (TL) shipments, and over-declaring of shipments. All-units purchase quantity discounts are assumed also. Due to the nonlinear nature of motor carrier freight rates, this problem does not have a closed-form solution. Therefore, we present an Excel-based model for solving this problem. As demonstrated in the model solution, when environmental costs are considered, the buyer’s optimal purchase quantity decreases

Suggested Citation

  • Andrew Manikas & Michael Godfrey, 2018. "A Spreadsheet Approach For Incorporating Actual Motor Carrier Freight Rates And External Environmental Costs In A Newsvendor Model," International Journal of Management and Marketing Research, The Institute for Business and Finance Research, vol. 11(1), pages 55-72.
  • Handle: RePEc:ibf:ijmmre:v:11:y:2018:i:1:p:55-72
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    References listed on IDEAS

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    More about this item

    Keywords

    Newsvendor Model; Environmental Costs; Motor Career Freight Rates;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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