scholarly journals Managing the Newsvendor Modeled Product System with Random Capacity and Capacity-Dependent Price

2015 ◽  
Vol 2015 ◽  
pp. 1-10 ◽  
Author(s):  
Qingying Li ◽  
Ciwei Dong ◽  
Ruixin Zhuang
Keyword(s):  
Numerical Study ◽  
Market Price ◽  
Optimal Order ◽  
Selling Price ◽  
Newsvendor Model ◽  
Order Quantity ◽  
Product System ◽  
Random Capacity ◽  
Optimal Order Quantity ◽  
House Production

We consider a newsvendor modeled product system, where the firm provides products to the market. The supply capacity of the product is random, so the firm receives either the amount of order quantity or the realized capacity, whichever is smaller. The market price is capacity dependent. We consider two types of production cost structures: the procurement case and the in-house production case. The firm pays for the received quantity in the former case and for the ordered quantity in the latter case. We obtain the optimal order quantities for both cases. Comparing with the traditional newsvendor model, we find that the optimal order quantity in both the procurement case and the in-house production case are no greater than that in the traditional newsvendor model with a fixed selling price. We also find that the optimal order quantity for the procurement case is greater than that for the in-house production case. Numerical study is conducted to investigate the sensitivity of the optimal solution versus the distribution of the random capacity/demand.

scholarly journals Coping with Loss Aversion in the Newsvendor Model

2015 ◽  
Vol 2015 ◽  
pp. 1-11 ◽  
Author(s):  
Jianwu Sun ◽  
Xinsheng Xu
Keyword(s):  
Expected Utility ◽  
Loss Aversion ◽  
Confidence Level ◽  
Profit Maximization ◽  
Optimal Order ◽  
Market Demand ◽  
Newsvendor Model ◽  
Order Quantity ◽  
Decision Bias ◽  
Optimal Order Quantity

We introduce loss aversion into the decision framework of the newsvendor model. By introducing the loss aversion coefficientλ, we propose a novel utility function for the loss-averse newsvendor. First, we obtain the optimal order quantity to maximize the expected utility for the loss-averse newsvendor who is risk-neutral. It is found that this optimal order quantity is smaller than the expected profit maximization order quantity in the classical newsvendor model, which may help to explain the decision bias in the classical newsvendor model. Then, to reduce the risk which originates from the fluctuation in the market demand, we achieve the optimal order quantity to maximize CVaR about utility for the loss-averse newsvendor who is risk-averse. We find that this optimal order quantity is smaller than the optimal order quantity to maximize the expected utility above and is decreasing in the confidence levelα. Further, it is proved that the expected utility under this optimal order quantity is decreasing in the confidence levelα, which verifies that low risk implies low return. Finally, a numerical example is given to illustrate the obtained results and some management insights are suggested for the loss-averse newsvendor model.

scholarly journals Hedging Risks in the Loss-Averse Newsvendor Problem with Backlogging

Mathematics ◽  
2019 ◽  
Vol 7 (5) ◽  
pp. 429 ◽  
Author(s):  
Xiaoqing Liu ◽  
Felix T. S. Chan ◽  
Xinsheng Xu
Keyword(s):  
Value At Risk ◽  
Profit Maximization ◽  
Newsvendor Problem ◽  
Sensitivity Analyses ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Newsvendor Model ◽  
Order Quantity ◽  
Decision Bias ◽  
Optimal Order Quantity

This paper studies the optimal order decisions for the loss-averse newsvendor problem with backordering and contributes to the risk hedging issue in the newsvendor model. The Conditional Value-at-Risk (CVaR) measure is applied to quantify the potential risks for the loss-averse newsvendor in a backordering setting, and we obtain the optimal order quantity for a loss-averse newsvendor to maximize the CVaR of utility. It is found that the optimal order quantity to maximize the CVaR objective could be bigger or smaller than the expected profit maximization (EPM) order quantity, which provides an alternative explanation on decision bias in the newsvendor model. This study also reveals that the optimal order quantity for a loss-averse newsvendor to maximize expected utility with backordering is smaller than the EPM order quantity, which implies that backordering encourages the loss-averse newsvendor to order fewer items. Sensitivity analyses are performed to investigate the properties of the optimal order quantities and managerial insights are suggested. This paper provides a novel method for the risk management of the loss-averse newsvendor model and presents several new ordering policies for the retailers in practice.

scholarly journals Maximization of container slot booking profits for carriers in the liner shipping industry

2021 ◽  
Vol 6 (1) ◽  
Author(s):  
Yu Guo ◽  
Ran Yan ◽  
Hans Wang
Keyword(s):  
Liner Shipping ◽  
Expected Profit ◽  
Optimal Order ◽  
Newsvendor Model ◽  
Shipping Industry ◽  
Order Quantity ◽  
Sensitive Analysis ◽  
Transportation Demand ◽  
Maximum Profit ◽  
Optimal Order Quantity

AbstractIn the liner shipping industry, if a shipper wants to transport its cargo by container ships, it first needs to contact a carrier to book container slots based on the estimated transportation demand. However, one problem in the booking process is that the actual demand is uncertain, resulting in mismatch between the required demand and the booked quantity. To address this issue, this study develops a Newsvendor model to find the optimal order quantity of container slots for the shipper. In addition, uncertainties in the quantity of container slots booking made by the shipper might cause revenue loss to the carrier and low utilization of ship capacity in the daily operations of liner shipping services. Therefore, this study suggests that the shipper should pay reservation fee when booking container slots. This study also aims to find the maximum profit for the carrier under the optimal order quantity of the shipper. In sensitive analysis, how different prices per container slot offered by the carrier would influence the reservation fee, the optimal order quantity of the shipper, and the expected profit of the carrier are explored and discussed. This study can help to manage and promote the online container booking systems in the liner shipping industry.

scholarly journals Opportunity Loss Minimization and Newsvendor Behavior

2017 ◽  
Vol 2017 ◽  
pp. 1-11
Author(s):  
Xinsheng Xu ◽  
Hong Yan ◽  
Chi Kin Chan
Keyword(s):  
Conditional Value At Risk ◽  
Optimal Order ◽  
Market Demand ◽  
Newsvendor Model ◽  
Order Quantity ◽  
Loss Minimization ◽  
Decision Bias ◽  
Optimal Order Quantity ◽  
Opportunity Loss ◽  
Order Quantities

To study the decision bias in newsvendor behavior, this paper introduces an opportunity loss minimization criterion into the newsvendor model with backordering. We apply the Conditional Value-at-Risk (CVaR) measure to hedge against the potential risks from newsvendor’s order decision. We obtain the optimal order quantities for a newsvendor to minimize the expected opportunity loss and CVaR of opportunity loss. It is proven that the newsvendor’s optimal order quantity is related to the density function of market demand when the newsvendor exhibits risk-averse preference, which is inconsistent with the results in Schweitzer and Cachon (2000). The numerical example shows that the optimal order quantity that minimizes CVaR of opportunity loss is bigger than expected profit maximization (EPM) order quantity for high-profit products and smaller than EPM order quantity for low-profit products, which is different from the experimental results in Schweitzer and Cachon (2000). A sensitivity analysis of changing the operation parameters of the two optimal order quantities is discussed. Our results confirm that high return implies high risk, while low risk comes with low return. Based on the results, some managerial insights are suggested for the risk management of the newsvendor model with backordering.

scholarly journals Retailer’s replenishment policies under conditions of permissible delay in payments

2004 ◽  
Vol 14 (2) ◽  
pp. 231-246 ◽  
Author(s):  
Yung-Fu Huang
Keyword(s):  
Cycle Time ◽  
Real Life ◽  
Optimal Order ◽  
Selling Price ◽  
Order Quantity ◽  
Permissible Delay In Payments ◽  
Credit Period ◽  
Optimal Order Quantity ◽  
Delay In Payments ◽  
S Model

Goyal (1985) is frequently cited when the inventory systems under conditions of permissible delay in payments are discussed. Goyal implicitly assumed that: 1. The unit selling price and the unit purchasing price are equal; 2. At the end of the credit period, the account is settled. The retailer starts paying for higher interest charges on the items in stock and returns money of the remaining balance immediately when the items are sold. But these assumptions are debatable in real-life situations. The main purpose of this paper is to modify Goyal?s model to allow the unit selling price and the unit purchasing price not necessarily be equal to reflect the real-life situations. Furthermore, this paper will adopt different payment rule. We assume that the retailer uses sales revenue during the permissible credit period to make payment to the supplier at the end of the credit period. If it is not enough to pay off the purchasing cost of all items, the retailer will pay off the remaining balance by taking loan from the bank. So, the retailer starts paying for the interest charges on the amount of loan from the bank after the account is settled. Then the retailer will return money to the bank at the end of the inventory cycle. Under these conditions, we model the retailer?s inventory system as a cost minimization problem to determine the retailer?s optimal cycle time and optimal order quantity. Four cases are developed to efficiently determine the optimal cycle time and the optimal order quantity. Numerical examples are given to illustrate these cases. Comparing with Goyal?s model, we also find that the optimal cycle times in this paper are not longer than those of Goyal?s model.

scholarly journals An EPQ model under cash discount and permissible delay in payments derived without derivatives

2007 ◽  
Vol 17 (2) ◽  
pp. 177-193 ◽  
Author(s):  
Yung-Fu Huang ◽  
Chung-Li Chou ◽  
Jui-Jung Liao
Keyword(s):  
Cycle Time ◽  
Optimal Order ◽  
Selling Price ◽  
Order Quantity ◽  
Permissible Delay In Payments ◽  
Special Cases ◽  
Time Optimal ◽  
Optimal Order Quantity ◽  
Cash Discount ◽  
Delay In Payments

The main purpose of this paper is to investigate the case where the retailer?s unit selling price and the purchasing price per unit are not necessarily equal within the economic production quantity (EPQ) framework under cash discount and permissible delay in payments. We establish the retailer?s inventory system as a cost minimization problem to determine the retailer?s optimal inventory cycle time, optimal order quantity and optimal payment time. This paper provides an algebraic approach to determine the optimal cycle time, optimal order quantity and optimal payment time. This approach provides one theorem to efficiently determine the optimal solution. Some previously published results of other researchers are deduced as special cases. Finally, numerical examples are given to illustrate the result and the managerial insights are also obtained.

Optimal Pricing Strategies for an Inventory System with Perishable Items and Waiting Time Dependent Order Cancellations

2011 ◽  
pp. 326-338
Author(s):  
A. Thangam ◽  
R. Uthayakumar
Keyword(s):  
Waiting Time ◽  
Numerical Study ◽  
Solution Procedure ◽  
Inventory System ◽  
Optimal Order ◽  
Order Quantity ◽  
Perishable Items ◽  
Demand Functions ◽  
Advance Sales ◽  
Optimal Order Quantity

Although many researchers have studied inventory models for perishable items, the situation of advance sales, spot sales and order cancellations have not been addressed so far. However, this problem arises in a variety of industries including the sales of fashion garments, flight seats and hotel rooms. In this article, we deal with an inventory system in which sales cycle is divided into an advance sales period and a spot sales period. We consider order cancellation effect which depends on the waiting time of the customer orders. The goal is to determine the optimal order quantity and optimal prices in order to maximize the profit. We also show the concavity of the profit function using mathematical lemmas and theorem. Besides we develop a solution procedure which computes optimal policy effectively. Finally we present the results of numerical study for linear and exponential demand functions.

Application of Simulation Techniques

2016 ◽  
pp. 268-299
Author(s):  
Ningombam Sanjib Meitei ◽  
Snigdha Banerjee
Keyword(s):  
Inventory Model ◽  
Optimal Order ◽  
Selling Price ◽  
Order Quantity ◽  
Factors Affecting ◽  
Simulation Techniques ◽  
Business System ◽  
Demand Rate ◽  
Optimal Values ◽  
Optimal Order Quantity

In the present work, we provide a simulated inventory model incorporating multiple stochastic factors affecting an inventory model. This can provide solutions to managerial problems faced by retailers that have been addressed through the Single period problem (SPP) models. For a time dependent SPP with multiple discounts of random amounts at random time points, we consider a model wherein the factors demand rate, lead-time, number of discounts during a season, discount rates, time epoch at which a new discount rate is offered are stochastic. We provide solution procedures as pseudo algorithms for simulating near optimal order quantity and estimate of rate of price decline as well as optimal values of order quantity and total expected profit for a given value of initial selling price. Illustrative examples are presented in order to enable the researchers to be able to apply the methodology explained. The technique for estimating the probability that a business system shall be profitable or be a loss venture is demonstrated using numerical example.

Static Inventory Model with Unknown Proportion of Defectives in the Supplied Lot

1983 ◽  
Vol 32 (3-4) ◽  
pp. 169-176
Author(s):  
S. P. Mukherjee ◽  
M. Pal
Keyword(s):  
Inventory Model ◽  
Optimal Order ◽  
Selling Price ◽  
Order Quantity ◽  
Sampling Inspection ◽  
Shortage Cost ◽  
Inspection Plan ◽  
Purchase Cost ◽  
Net Profit ◽  
Optimal Order Quantity

A static inventory model where lots received (against orders) are accepted through a curtailed single sampling inspection plan has been considered. Since the proportion of non-defective units in a lot is not likely to be known in advance, a probability Jaw has been assumed for the same. The optimal order quantity has been obtained by maximizing the expected net profit, taking into account selling price, purchase cost, carrying cost, shortage cost, salvage cost and inspcctioo cost.

Sign in / Sign up

Export Citation Format

Share Document