Aggregate constrained inventory systems with independent multi-product demand: control practices and theoretical limitations

In practice, inventory managers are often confronted with a need to consider one or more aggregate constraints. These aggregate constraints result from available workspace, workforce, maximum investment or target service level. We consider independent multi-item inventory problems with aggregate constraints and one of the following characteristics: deterministic leadtime demand, newsvendor, basestock policy, rQ policy and sS policy. We analyze some recent relevant references and investigate the considered versions of the problem, the proposed model formulations and the algorithmic approaches. Finally we highlight the limitations from a practical viewpoint for these models and point out some possible direction for future improvements

Constructive solution methodologies to the capacitated newsvendor problem and surrogate extension

The newsvendor problem is a single-period stochastic model used to determine the order quantity of perishable product that maximizes/minimizes the profit/cost of the vendor under uncertain demand. The goal is to fmd an initial order quantity that can offset the impact of backlog or shortage caused by mismatch between the procurement amount and uncertain demand. If there are multiple products and substitution between them is feasible, overstocking and understocking can be further reduced and hence, the vendor\u27s overall profit is improved compared to the standard problem. When there are one or more resource constraints, such as budget, volume or weight, it becomes a constrained newsvendor problem. In the past few decades, many researchers have proposed solution methods to solve the newsvendor problem. The literature is first reviewed where the performance of each of existing model is examined and its contribution is reported. To add to these works, it is complemented through developing constructive solution methods and extending the existing published works by introducing the product substitution models which so far has not received sufficient attention despite its importance to supply chain management decisions. To illustrate this dissertation provides an easy-to-use approach that utilizes the known network flow problem or knapsack problem. Then, a polynomial in fashion algorithm is developed to solve it. Extensive numerical experiments are conducted to compare the performance of the proposed method and some existing ones. Results show that the proposed approach though approximates, yet, it simplifies the solution steps without sacrificing accuracy. Further, this dissertation addresses the important arena of product substitute models. These models deal with two perishable products, a primary product and a surrogate one. The primary product yields higher profit than the surrogate. If the demand of the primary exceeds the available quantity and there is excess amount of the surrogate, this excess quantity can be utilized to fulfill the shortage. The objective is to find the optimal lot sizes of both products, that minimize the total cost (alternatively, maximize the profit). Simulation is utilized to validate the developed model. Since the analytical solutions are difficult to obtain, Mathematical software is employed to find the optimal results. Numerical experiments are also conducted to analyze the behavior of the optimal results versus the governing parameters. The results show the contribution of surrogate approach to the overall performance of the policy. From a practical perspective, this dissertation introduces the applications of the proposed models and methods in different industries such as inventory management, grocery retailing, fashion sector and hotel reservation

Quadratic Approximation of the Newsvendor Problem with Imperfect Quality

The paper presents a newsvendor problem in a fuzzy environment by introducing product quality as a fuzzy variable, and product demand as a probability distribution in an economic and supply chain management environment. In order to determine the optimal order quantity, a methodology is developed where the solution is achieved using a fuzzy ranking method combined with a quadratic programming problem approximation. Numerical examples are provided and compared in both situations, namely fuzzy and crisp. The results of these numerical examples show that the decision maker has to order a higher quantity when product quality is a fuzzy variable. The model can be useful for real world problems when historical data are not available

Robust Solutions of Optimization Problems Affected by Uncertain Probabilities

In this paper we focus on robust linear optimization problems with uncertainty regions defined by ø-divergences (for example, chi-squared, Hellinger, Kullback-Leibler). We show how uncertainty regions based on ø-divergences arise in a natural way as confidence sets if the uncertain parameters contain elements of a probability vector. Such problems frequently occur in, for example, optimization problems in inventory control or finance that involve terms containing moments of random variables, expected utility, etc. We show that the robust counterpart of a linear optimization problem with ø-divergence uncertainty is tractable for most of the choices of ø typically considered in the literature. We extend the results to problems that are nonlinear in the optimization variables. Several applications, including an asset pricing example and a numerical multi-item newsvendor example, illustrate the relevance of the proposed approach.robust optimization;ø-divergence;goodness-of-fit statistics

Multi-product budget-constrained acquistion and pricing with uncertain demand and supplier quantity discounts

We consider the joint acquisition and pricing problem where the retailer sells multiple products with uncertain demands and the suppliers provide all unit quantity discounts.The problem is to determine the optimal acquisition quantities and selling prices so as to maximize the retailer’s expected profit, subject to a budget constraint. This is the first extension to consider supplier discounts in the constrained multi-product newsvendor pricing problem. We establish a mixed integer nonlinear programming (MINLP) model to formulate the problem, and developaLagrangian based solution approach.Computational results for the test problems involving up to thousand products are reported, which show that the Lagrangian based approach can obtain high-quality solutions in a very short time

Data Science and the Ice-Cream Vendor Problem

Newsvendor problems in Operations Research predict the optimal inventory levels necessary to meet uncertain demands. This thesis examines an extended version of a single period multi-product newsvendor problem known as the ice cream vendor problem. In the ice cream vendor problem, there are two products – ice cream and hot chocolate – which may be substituted for one another if the outside temperature is no too hot or not too cold. In particular, the ice cream vendor problem is a data-driven extension of the conventional newsvendor problem which does not require the assumption of a specific demand distribution, thus allowing the demand for ice cream and hot chocolate respectively to be temperature dependent. Using Discrete Event Simulation, we first simulate a real-world scenario of an ice cream vendor problem via a demand whose expected value is a function of temperature. A sample average approximation technique is subsequently used to transform the stochastic newsvendor program into a feature-driven linear program based on the exogenous factors of probability of rainfall and temperature. The resulting problem is a multi-product newsvendor linear program with L1-regularization. The solution to this problem yields the expected cost to the ice cream vendor as well as the optimal order quantities for ice cream and hot chocolate, respectively

Multi-item quick response system with budget constraint

Cataloged from PDF version of article.Quick response mechanisms based on effective use of up-to-date demand information help retailers to reduce their inventory management costs. We formulate a single-period inventory model for multiple products with dependent (multivariate normal) demand distributions and a given overall procurement budget. After placing orders based on an initial demand forecast, new market information is gathered and demand forecast is updated. Using this more accurate second forecast, the retailer decides the total stocking level for the selling season. The second order is based on an improved demand forecast, but it also involves a higher unit supply cost. To determine the optimal ordering policy, we use a computational procedure that entails solving capacitated multi-item newsboy problems embedded within a dynamic programming model. Various numerical examples illustrate the effects of demand variability and financial constraint on the optimal policy. It is found that existence of a budget constraint may lead to an increase in the initial order size. It is also observed that as the budget available decreases, the products with more predictable demand make up a larger share of the procurement expenditure. & 2012 Elsevier B.V. All rights reserved