Article ID: | iaor20126251 |
Volume: | 140 |
Issue: | 2 |
Start Page Number: | 912 |
End Page Number: | 921 |
Publication Date: | Dec 2012 |
Journal: | International Journal of Production Economics |
Authors: | Yan Houmin, Cheng T C E, Ma Lijun, Zhao Yingxue, Xue Weili |
Keywords: | decision, inventory: order policies, risk, combinatorial optimization, demand, forecasting: applications |
A fashion supply chain characterized by a long lead time and a short selling season is considered in this paper. Facing demand uncertainty, the risk averse retailer has two opportunities to make order decisions before the demand is realized. The risk aversion is modelled as a penalty to the decision maker (the retailer) if a target profit is not attained. We derive the retailer's optimal ordering decisions and analyze the monotonicity behaviours of the critical market signal, the optimal first‐stage order quantity, and the optimal expected payoff with respect to the penalty coefficient. We also examine the impact of demand forecast quality on the retailer's decisions and extend the study to the case where order cancellation is allowed.