Newsvendor problems with demand forecast updating and supply constraints

This study investigates an extension of the newsvendor model with demand forecast updating under supply constraints. A retailer can postpone order placement to obtain a better demand forecast with a shorter supply lead time. However, the manufacturer would charge the retailer a higher cost for a shorter lead time and set restrictions on the ordering times and quantities. This prevents retailers from taking full advantage of demand forecast updating to improve profits. In studying the manufacturer-related effects, two supply modes are investigated: supply mode A, which has a limited ordering time scale, and supply mode B, which has a decreasing maximum ordering quantity. For supply mode A, it is proven under justifiable assumptions that a retailer should order either as early or as late as possible. For supply mode B, an algorithm is proposed to simplify the ordering policy by appropriately relaxing the ordering quantity restrictions. Numerical analysis is conducted to investigate the influence of product and demand parameters on the value of demand forecast updating in the two supply modes. A comparison of the different supply scenarios demonstrates the negative effects of increased purchasing cost and ordering time and quantity restrictions when demand forecast updating is implemented. We investigate the trade-off between demand information and supply constraints.Supply constraints are quantified based on queueing theory.Under time constraints, the optimal ordering time is either the earliest or latest.Under quantity constraints, the optimal ordering time may rely on demand forecast evolution.

[1]  Brian Tomlin,et al.  To wait or not to wait: Optimal ordering under lead time uncertainty and forecast updating , 2009 .

[2]  Christopher S. Tang,et al.  Optimal Ordering Decisions with Uncertain Cost and Demand Forecast Updating , 1999 .

[3]  Hing Kai Chan,et al.  A simulation study with quantity flexibility in a supply chain subjected to uncertainties , 2006, Int. J. Comput. Integr. Manuf..

[4]  J. S. Kim,et al.  Lot size dependent lead times in a Q,R inventory system , 1995 .

[5]  Eb Erik Diks,et al.  A two-echelon inventory system with supply lead time flexibility , 2003 .

[6]  P. Burke.  The Output of a Queuing System , 1956 .

[7]  C. Liao,et al.  An Analytical Determination of Lead Time with Normal Demand , 1991 .

[8]  Jian Li,et al.  Managing Inventory Over a Short Season: Models with Two Procurement Opportunities , 2009, Manuf. Serv. Oper. Manag..

[9]  Yehuda Bassok,et al.  Coordination and Flexibility in Supply Contracts with Options , 2002, Manuf. Serv. Oper. Manag..

[10]  Tong Wang,et al.  A Multiordering Newsvendor Model with Dynamic Forecast Evolution , 2012, Manuf. Serv. Oper. Manag..

[11]  Suresh P. Sethi,et al.  Coordination Mechanism for the Supply Chain with Leadtime Consideration and Price-Dependent Demand , 2009, Eur. J. Oper. Res..

[12]  Leon F. McGinnis,et al.  Interpolation approximations for queues in series , 2013 .

[13]  E. Silver,et al.  The single period procurement problem where dedicated supplier capacity can be reserved , 1995 .

[14]  A. Tsay.  The Quantity Flexibility Contract and Supplier-Customer Incentives , 1999 .

[15]  Liang-Yuh Ouyang,et al.  Integrated vendor-buyer cooperative inventory models with controllable lead time and ordering cost reduction , 2006, Eur. J. Oper. Res..

[16]  Jiri Chod,et al.  Strategic Investments, Trading, and Pricing Under Forecast Updating , 2006, Manag. Sci..

[17]  Christoph H. Glock,et al.  Lead time reduction strategies in a single-vendor–single-buyer integrated inventory model with lot size-dependent lead times and stochastic demand , 2012 .

[18]  Cheryl T. Druehl,et al.  Design for the Environment: Life‐Cycle Approach Using a Newsvendor Model , 2013 .

[19]  K. Banasiewicz.  Economic and organizational effects of different legal and organizational forms of enterprises , 2006 .

[20]  Chung-Yee Lee,et al.  Technical Note - Optimal Control of an Assembly System with Multiple Stages and Multiple Demand Classes , 2011, Oper. Res..

[21]  Ciro D'Apice,et al.  Queueing Theory , 2003, Operations Research.

[22]  Warren H. Hausman,et al.  Sequential Decision Problems: A Model to Exploit Existing Forecasters , 1969 .

[23]  L. Kleinrock.  A conservation law for a wide class of queueing disciplines , 1965 .

[24]  Hisashi Kobayashi,et al.  Accuracy of the diffusion approximation for some queuing systems , 1974 .

[25]  Dimitrios Vlachos,et al.  An inventory system with two supply modes and capacity constraints , 2001 .

[26]  Suresh P. Sethi,et al.  Purchase contract management with demand forecast updates , 2005 .

[27]  Robin O. Roundy,et al.  The evolution of family level sales forecasts into product level forecasts: Modeling and estimation , 2007 .

[28]  Özalp Özer,et al.  Inventory Control with Limited Capacity and Advance Demand Information , 2004, Oper. Res..

[29]  Apostolos Burnetas,et al.  Future Capacity Procurements Under Unknown Demand and Increasing Costs , 2001, Manag. Sci..

[30]  Stephen M. Gilbert,et al.  Supply chain benefits from advanced customer commitments , 1999 .

[31]  S. Subba Rao,et al.  The relationship of work-in-process inventories, manufacturing lead times and waiting line analysis , 1992 .

[32]  Sanchoy K. Das,et al.  Modeling the flexibility of order quantities and lead-times in supply chains , 2003 .

[33]  W. Whitt,et al.  The Queueing Network Analyzer , 1983, The Bell System Technical Journal.

[34]  R. Brown.  Statistical forecasting for inventory control , 1960 .

[35]  Marshall L. Fisher,et al.  Reducing the Cost of Demand Uncertainty Through Accurate Response to Early Sales , 1996, Oper. Res..

[36]  Candace Aria Yano,et al.  Setting Planned Leadtimes in Serial Production Systems with Tardiness Costs , 1987 .

[37]  Diwakar Gupta,et al.  Fast-ship commitment contracts in retail supply chains , 2013 .

[38]  Tsan-Ming Choi,et al.  Optimal single ordering policy with multiple delivery modes and Bayesian information updates , 2004, Comput. Oper. Res..

[39]  Özalp Özer,et al.  Information Acquisition for Capacity Planning via Pricing and Advance Selling: When to Stop and Act? , 2009, Oper. Res..

[40]  Hau L. Lee,et al.  Information distortion in a supply chain: the bullwhip effect , 1997 .

[41]  Özalp Özer,et al.  Selling to the "Newsvendor" with a forecast update: Analysis of a dual purchase contract , 2007, Eur. J. Oper. Res..

[42]  Uday S. Karmarkar,et al.  Lot Sizes, Lead Times and In-Process Inventories , 1987 .

[43]  Steven J. Erlebacher.  OPTIMAL AND HEURISTIC SOLUTIONS FOR THE MULTI‐ITEM NEWSVENDOR PROBLEM WITH A SINGLE CAPACITY CONSTRAINT , 2000 .

[44]  Z. Kevin Weng.  Managing production with flexible capacity deployment for serial multi-stage manufacturing systems , 1998, Eur. J. Oper. Res..

[45]  Elizabeth M. Jewkes,et al.  Customer Lead Time Management When Both Demand and Price are Lead Time Sensitive , 2004, Eur. J. Oper. Res..

[46]  James R. Jackson,et al.  Jobshop-Like Queueing Systems , 2004, Manag. Sci..

[47]  D. Heath,et al.  Modelling the evolution of demand forecasts with application to safety stock analysis in production distribution systems , 1994 .

[48]  Mark Ferguson,et al.  Evaluation of postponement structures to accommodate mass customization , 2005 .

[49]  Philip M. Kaminsky,et al.  Designing and managing the supply chain : concepts, strategies, and case studies , 2007 .

[50]  Panagiotis Kouvelis,et al.  Order Quantity and Timing Flexibility in Supply Chains: The Role of Demand Characteristics , 2005, Manag. Sci..

[51]  H. Teng.  EPQ models for deteriorating items with linearly discounted backordering under limited utilization of facility , 2013 .

[52]  K. Donohue.  Efficient Supply Contracts for Fashion Goods with Forecast Updating and Two Production Modes , 2000 .

[53]  R. J. Tersine,et al.  Lead‐time reduction: the search for competitive advantage , 1995 .

[54]  Michael O. Ball,et al.  Optimization-Based Available-To-Promise with Multi-Stage Resource Availability , 2005, Ann. Oper. Res..

[55]  C. Chuang,et al.  An extended newsboy problem with shortage-level constraints , 2000 .

[56]  M. Fisher.  What is the Right Supply Chain for Your Product , 1997 .

[57]  Stephen C. Graves,et al.  A Dynamic Model for Requirements Planning with Application to Supply Chain Optimization , 1998, Oper. Res..