Economic ordering model for multiple items with stochastic demand and budget constraint

The classical newsboy problem considers the single product case to determine the optimal ordering quantity which maximises the expected profit. This paper attempts to develop a newsboy type model with multiple products and stochastic demand and determine the optimal ordering quantity based on the different time periods which maximise the expected profit subject to the budget constraints. In the modern market, each individual customer has his own freedom to choose the product independently. Accordingly, this paper assumes that the demand for each product is invariably independent and follows the lognormal distribution with different mean and variance. An effective method has been developed to determine the optimal ordering quantity for each product at different time period with different level of budget constraint. From the illustrations, it is quite clear that an optimal solution can be obtained for the proposed model. The analytical structure used in the proposed model shows that the multi-product extension of the newsboy problem with budget constraint and stochastic demand is a very challenging area of research.