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: | Zhu Kaijie, Lu Xiangwen, Song JingSheng |
Keywords: | deteriorating items, lost sales |
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.