A Newsvendor Model with Unreliable Suppliers
We consider the problem of a newsvendor that is served by multiple suppliers, where any given supplier may be unreliable. By unreliable we simply mean that the marginal amount received from a supplier is no more than, and typically is less than, the marginal amount ordered from the supplier. In this setting, the newsvendor needs to determine (1) whether or not to place an order with a given supplier, and (2) if so, then for how much? To address these questions, we develop a general framework in which the newsvendor can diversify its risk of inadequate delivery amounts by spreading its orders among any number and combination of available suppliers that differ in terms of cost and (delivery) reliability. Ultimately, we find that the newsvendor model with unreliable suppliers has the same structural properties as a newsvendor model in which all suppliers are reliable but have limited capacity. Our resulting contribution is two?fold: First, we establish properties of the optimal solution and develop corresponding insights into the trade?off between cost and reliability. Second, we perform comparative statics on the optimal solution, with a particular emphasis on investigating how changes in suppliers cost or reliability affect the newsvendor's ordering decisions and customer service level.
|Date of creation:||Aug 2003|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp|
More information through EDIRC
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.:
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
- Yunzeng Wang & Yigal Gerchak, 1996. "Periodic Review Production Models with Variable Capacity, Random Yield, and Uncertain Demand," Management Science, INFORMS, vol. 42(1), pages 130-137, January.
- Jan A. Van Mieghem & Nils Rudi, 2002. "Newsvendor Networks: Inventory Management and Capacity Investment with Discretionary Activities," Manufacturing & Service Operations Management, INFORMS, vol. 4(4), pages 313-335, August.
- Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
When requesting a correction, please mention this item's handle: RePEc:ecl:illbus:03-0112. 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: ()
If references are entirely missing, you can add them using this form.