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Modelling the newsvendor problem with a random fraction of defective items in the lot

Author

Listed:
  • Mohammad J. Alkhedher
  • Abdulrahman Alenezi
  • Mehmet Savsar

Abstract

An important assumption in deriving a formula for the optimal lot size newsvendor problem is that 100% of items in an ordered lot are assumed conforming to specifications. In real-life situations, however, this assumption may not hold for many production processes because of process deterioration and other factors. This paper develops a model for the newsvendor problem under the assumption that each ordered lot contains a random fraction of defective items which follows a beta distribution. The concavity of the expected total profit is established and the global optimal solution is determined by an algorithm based on Karush-Kuhn-Tucker conditions. Also, the effects of model's key parameters on the optimal solution are investigated using several case examples.

Suggested Citation

  • Mohammad J. Alkhedher & Abdulrahman Alenezi & Mehmet Savsar, 2017. "Modelling the newsvendor problem with a random fraction of defective items in the lot," International Journal of Procurement Management, Inderscience Enterprises Ltd, vol. 10(4), pages 495-513.
    • Handle: RePEc:ids:ijpman:v:10:y:2017:i:4:p:495-513
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