Analysis of Perishable-Inventory Systems with Censored Demand Data

Analysis of Perishable-Inventory Systems with Censored Demand Data

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Article ID: iaor200942192
Country: United States
Volume: 56
Issue: 4
Start Page Number: 1034
End Page Number: 1038
Publication Date: Jul 2008
Journal: Operations Research
Authors: , ,
Keywords: deteriorating items, lost sales
Abstract:

We consider a multiperiod inventory system of a perishable product with unobservable lost sales. Demand distribution parameters are unknown and are updated periodically using the Bayesian approach based on the censored historical sales data. We develop an explicit expression of the first–order condition for optimality that demonstrates the key trade–off of the problem. The result generalizes partial characterizations of this trade–off in the literature. It shows that the myopic solution is a lower bound on the optimal inventory level. It also enables us to quantify the expected marginal value of information.

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