Newsvendor games: convex optimization of centralized inventory operations
A finite set of outlets with randomly fluctuating demands bands together to reduce costs by buying, storing and distributing their inventory jointly. This is termed inventory centralization and is a type of risk pooling. The expected centralization cost can be lowered even further, without disrupting the demand behavior at individual outlets, by inducing the outlets to correlate their individual demands. Given that the outlets’ demands are normally distributed, the lowering of the centralized cost corresponds to a semidefinite optimization problem. This paper establishes a closed-form optimal solution of the semidefinite program and a fair allocation of the centralized cost at optimality. Copyright Sociedad de Estadística e Investigación Operativa 2012
Volume (Year): 20 (2012)
Issue (Month): 3 (October)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=120409|
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Saif Benjaafar & William L. Cooper & Joon-Seok Kim, 2005. "On the Benefits of Pooling in Production-Inventory Systems," Management Science, INFORMS, vol. 51(4), pages 548-565, April.
- Hartman, Bruce C. & Dror, Moshe & Shaked, Moshe, 2000. "Cores of Inventory Centralization Games," Games and Economic Behavior, Elsevier, vol. 31(1), pages 26-49, April.
- Gary D. Eppen, 1979. "Note--Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem," Management Science, INFORMS, vol. 25(5), pages 498-501, May.
When requesting a correction, please mention this item's handle: RePEc:spr:topjnl:v:20:y:2012:i:3:p:707-728. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.