INTERDEPENDENT DEMAND IN THE TWO-PERIOD NEWSVENDOR PROBLEM

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Lotfi R., Weber G. , Sajadifar S. M. , Mardani N.

JOURNAL OF INDUSTRIAL AND MANAGEMENT OPTIMIZATION, vol.16, no.1, pp.117-140, 2020 (Journal Indexed in SCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 16 Issue: 1
  • Publication Date: 2020
  • Doi Number: 10.3934/jimo.2018143
  • Title of Journal : JOURNAL OF INDUSTRIAL AND MANAGEMENT OPTIMIZATION
  • Page Numbers: pp.117-140
  • Keywords: Newsvendor problem, expected profit, unsatisfied demand, interdependent demand, optimization, uncertainty, FREE NEWSBOY PROBLEM, QUANTITY DISCOUNTS, POLICY

Abstract

The newsvendor problem is a classical task in inventory management. The present paper considers a two-period newsvendor problem where demand of different periods is interdependent (not independent), and seeks to follow this approach to develop a two-period newsvendor problem with unsatisfied demand or unsold quantity. Concerning the complexity of solution of multiple integrals, the problem is assessed for only two periods. In the course of a numerical solution, the probability distribution function of demand pertaining to each period is assumed to be given (in the form of a bivariate normal distribution). The optimal solution is presented in the form of the initial inventory level that maximizes the expected profit. Finally, all model parameters are subjected to a sensitivity analysis. This model can be used in a number of applications, such as procurement of raw materials in projects (e.g., construction, bridge-building and molding) where demand of different periods is interdependent. Proposed model takes into account interdependent demand oughts to provide a better solution than a model based on independent demand.