SINGLE PERIOD INVENTORY MODEL WITH STOCHASTIC DEMAND AND PARTIAL BACKLOGGING

ABSTRACT In this present scenario of world economy both the factors like salvage and stock-out situations are equally important. Continuous sources of uncertainty (stochastic demand), has a different impact on optimal inventory settings and prevents optimal solutions from being found in closed form. In this paper an approximate closed-form solution is developed using a single stochastic period of demand. Assorted level of demand is viewed in form of a special class of inventory evolution known as finite inventory process. Here the Inventory process is reviewed in form of three cases. This paper involves the study of optimality of the expected cost using the SCBZ property. Shortage cost is kept in view, in order to meet the customer demand. Finally this paper aims to show the optimal solution for three cases of finite inventory model in which the demand is varied according to the SCBZ property. Appropriate Numerical illustrations provide a justification for its unique existence

SINGLE PERIOD INVENTORY MODEL WITH STOCHASTIC DEMAND AND PARTIAL BACKLOGGING

ABSTRACT In this present scenario of world economy both the factors like salvage and stock-out situations are equally important. Continuous sources of uncertainty (stochastic demand), has a different impact on optimal inventory settings and prevents optimal solutions from being found in closed form. In this paper an approximate closed-form solution is developed using a single stochastic period of demand. Assorted level of demand is viewed in form of a special class of inventory evolution known as finite inventory process. Here the Inventory process is reviewed in form of three cases. This paper involves the study of optimality of the expected cost using the SCBZ property. Shortage cost is kept in view, in order to meet the customer demand. Finally this paper aims to show the optimal solution for three cases of finite inventory model in which the demand is varied according to the SCBZ property. Appropriate Numerical illustrations provide a justification for its unique existence

REVENUE AND ORDER MANAGEMENT UNDER DEMAND UNCERTAINTY

We consider a firm that delivers its products across several customers or markets, each with unique revenue and uncertain demand size for a single selling season. Given that the firm experiences a long procurement lead time, the firm must decide, far in advance of the selling season not only the markets to be pursued but also the procurement quantity. In this dissertation, we present several operational scenarios in which the firm must decide which customer demands to satisfy, at what level to satisfy each customer demand, and how much to produce (or order) in total. Traditionally, a newsvendor approach to the single period problem assumes the use of an expected profit objective. However, maximizing expected profit would not be appropriate for firms that cannot afford successive losses or negligible profits over several consecutive selling seasons. Such a setting would most likely require minimizing the downside risk of accepting uncertain demands into the production plan. We consider the implications of such competing objectives. We also investigate the impact that various forms of demand can have on the flexibility of a firm in their customer/market selection process. a firm may face a small set of unconfirmed orders, and each order will often either come in at a predefined level, or it will not come in at all. We explore optimization solution methods for this all-or-nothing demand case with risk-averse objective utilizing conditional value at risk (CVaR) concept from portfolio management. Finally, in this research, we explore extensions of the market selection problem. First, we consider the impact of incorporating market-specific expediting costs into the demand selection and procurement decisions. Using a lost sales assumption instead of an expediting assumption, we perform a similar analysis using market-specific lost sales costs. For each extension we investigate two different approaches: i) Greedy approach: here we allocate order quantity to market with lowest expediting cost (lowest expected revenue) first. ii) Rationing approach: here we find the shortage (lost sale) then ration it across all the markets. We present ideas and approaches for each of these extensions to the selective newsvendor problem

Coordination of production and advertising decisions in a single period with a budget constraint

Cataloged from PDF version of article.In this study, we consider the production and advertising decisions in a newsboy setting with a budget constraint. Regression models that elaborate the effects of advertising on sales are investigated and various sales response models are presented. An application in soluble coffee market is also provided. Linear and power response functions are incorporated to jointly consider the production and advertising expenditures in a single period newsboy setting. Our numerical analyses indicate that production and advertising expenditure percentages are more sensitive to budget than the lost sales cost and the uncertainty (variance) of the demand.Gözek, AteşM.S

The floating contract between risk-averse supply chain partners in a volatile commodity price environment

In this dissertation, two separate but closely related decision making problems in environments of volatile commodity prices are addressed. In the first problem, a risk-averse commodity user\u27s purchasing policy and his risk-neutral supplier\u27s pricing decision, where the user can purchase his needs through contract with his supplier as well as directly from the spot market, are analyzed. The commodity user is assumed to be the supplier\u27s sole client, and the supplier can always expand capacity, at a cost to the user, to accommodate the user\u27s demand in excess of initially reserved capacity. In the more generalized second problem, both parties (commodity user and supplier) are assumed to be risk averse, and both can directly access the spot market. In addition to making pricing decisions, the supplier is also faced with the challenge of establishing the right combination of in-house production and spot market engagements to manage her risk of exposure to spot price volatility under the contract. While the supplier has a frictionless buy and sell access to the spot market, the user can only access this market for buying purposes and incurs an access fee that is linearly increasing in the purchased volume. In both problems, by adopting the mean-variance criterion to reflect aversion to risk, the decisions of both parties are explicitly characterized. Based on analytical results and numerical studies, managerial insights as to how changes in the model\u27s parameters would affect each party\u27s decisions are offered at length, and the implications of these results to the manager are discussed. A focal point for the dissertation is the consideration of a floating contract, the landing price of which is contingent on the realization of the commodity\u27s spot market price at the time of delivery. It was found that if properly designed, not only can this dynamic pricing arrangement strategically position a long-term supplier against spot market competition, but it also has the added benefit of leading to improved supply chain expected profits compared to a locked-in contract price setting. Another key finding is that when making her pricing decisions, the supplier runs the risk of overestimating the commodity user\u27s vulnerability at higher levels of the user\u27s aversion to risk as well as at higher volatility of spot prices

Information and Inventory Recourse for a Two-Market, Price-Setting Retailer

We analyze the problem of determining inventory and pricing decisions in a two-period retail setting when an opportunity to refine information about uncertain demand is available. The model extends the newsvendor problem with pricing by allowing for multiple suppliers, the pooling of procurement resources, and more general informational dynamics. One contribution is the solution procedure: we show that all decisions (up to seven in all, including recourse decisions) can be determined uniquely as a function of a surrogate first-period decision called the stocking factor. Hence, the two-period decision problem with recourse reduces to a search for one .decision variable. A second contribution is the policy implications: we find that the cost of learning is (I) a consequence of censored information because, on the margin, learning is free if full information is guaranteed; (2) measured in the form of an increased stocking factor; and (3) shared with the consumer in. the form of a higher selling price when demand uncertainty is additive. A third contribution is the application of the results to three motivating examples: A market research problem in which a product is introduced in a test market prior to a widespread launch; a global newsvendor problem in which a seasonal product is sold in two different countries with non-overlapping selling seasons; and a minimum-quantity commitment problem in which procurement resources for multiple purchases may be pooled

Employment by Design: Employees, Independent Contractors and the Theory of the Firm

Employment laws protect “employees” and impose duties on their “employers.” In the modern working world, however, “employee” and “employer” status is not always clear. The status of some workers and the firms they serve can be ambiguous, especially when the workers work as individuals not organized as firms. Individual workers might be “employees,” but they might also be self-employed individuals working as “independent contractors.” Even if it is clear that workers are someone’s “employees,” the identity of the employer can be unclear. If one firm pays “employees” to work mainly or exclusively for another firm that pays the first firm for the work, which firm is the “employer” of the employees

Production and inventory control in complex production systems using approximate dynamic programming.

Production systems focus not only on providing enough product to supply the market, but also on delivering the right product at the right price, while lowering the cost during the production process. The dynamics and uncertainties of modern production systems and the requirements of fast response often make its design and operation very complex. Thus, analytical models, such as those involving the use of dynamic programming, may fail to generate an optimal control policy for modern production systems. Modern production systems are often in possession of the features that allow them to produce various types of product through multiple working stations interacting with each other. The production process is usually divided into several stages, thus a number of intermediate components (WIP) are made to stock and wait to be handled by the next production stage. In particular, development of an efficient production and inventory control policy for such production systems is difficult, since the uncertain demand, system dynamics and large changeover times at the work stations cause significant problems. Also, due to the large state and action space, the controlling problems of modern production systems often suffer from the curse of dimensionality

Minimum cost decision for the tradeoff between finished goods inventory and product capacity

Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Mechanical Engineering, 1999.Includes bibliographical references (p. 59).by William E. Dutcher, Jr.S.M.M.B.A