INTERDEPENDENT DEMAND IN THE TWO-PERIOD NEWSVENDOR PROBLEM

Date

2020-01-01

Author

Lotfi, Reza
Weber, Gerhard Wilhelm
Sajadifar, S. Mehdi
Mardani, Nooshin

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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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.

Subject Keywords

Strategy and Management, Business and International Management, Control and Optimization, Applied Mathematics

URI

https://hdl.handle.net/11511/57419

Collections

Graduate School of Applied Mathematics, Article