Optimal production and inventory decisions for supply chains with one producer and multiple newsvendors

Optimal production and inventory decisions for supply chains with one producer and multiple newsvendors

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Article ID: iaor20134110
Volume: 15
Issue: 4
Start Page Number: 430
End Page Number: 448
Publication Date: Jun 2013
Journal: International Journal of Services and Operations Management
Authors: ,
Keywords: production, inventory
Abstract:

This paper considers a supply chain with a single manufacturer supplying a newsvendor‐type item to multiple retailers (newsvendors). The manufacturer produces the item in batches at a finite rate and ships the output to the retailers. The retailers then have to satisfy a stochastic demand which follows a general probability distribution. The objective is to view the system as an integrated whole and determine the production and shipment schedule which maximises the expected total profit in a selling period. The concavity of the expected total profit function is established, the global optimal solution is derived, and a simple but efficient algorithm is set out. Two special cases are considered, the first of which is for fast‐moving items and the other for slow‐moving items.

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