A multi-item newsvendor problem with preseason production and capacitated reactive production

Date

2008-08-01

Author

Chung, Chia-Shin
Flynn, James
Kirca, Oemer

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Given items with short life cycles or seasonal demands, one can potentially improve profits by producing during the selling season, especially when its production capacity is substantial. We develop a two-stage, multi-item model incorporating reactive production that employs a firm's internal capacity. Production occurs in an uncapacitated preseason stage and a capacitated reactive stage. Demands occur in the reactive stage. Reactive capacities are pre-allocated to each item in the preseason stage and cannot be changed during the reactive stage. Reactive production occurs during the selling season with full knowledge of demands. The objective is expected profit maximization. Unsatisfied demand is lost. The revenue, salvage value, and production and lost sales costs are proportional. Assuming no fixed costs, we present a simple algorithm for computing optimal policies. For a model with fixed costs for allocating preseason stage production and reactive stage capacity to product families, we characterize optimal policies and develop optimal and heuristic algorithms.

Subject Keywords

Management Science and Operations Research, Modelling and Simulation, Information Systems and Management

URI

https://hdl.handle.net/11511/66415

Journal

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH

DOI

https://doi.org/10.1016/j.ejor.2007.05.011

Collections

Department of Industrial Engineering, Article

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Citation Formats

C.-S. Chung, J. Flynn, and O. Kirca, “A multi-item newsvendor problem with preseason production and capacitated reactive production,” EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, pp. 775–792, 2008, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/66415.