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A ONE‐PERIOD STOCHASTIC INVENTORY PROBLEM WITH A LUMP‐SUM PENALTY COST
Author(s) -
HamidiNoori A.,
Bell Peter C.
Publication year - 1982
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1982.tb00160.x
Subject(s) - newsvendor model , economic shortage , mathematical optimization , order (exchange) , inventory cost , economic order quantity , product (mathematics) , inventory theory , function (biology) , computer science , inventory control , economics , operations research , mathematics , supply chain , business , linguistics , philosophy , geometry , finance , marketing , evolutionary biology , government (linguistics) , biology
This paper presents an inventory problem related to the one‐period stochastic inventory (or “newsboy”) problem. In this problem, the firm has to decide how much product to order to meet a random one‐period demand. The version of the problem presented is novel in two respects. First, demand is explicitly permitted to be negative, and second, the penalty (or shortage) cost is assumed to be independent of the magnitude of the shortage. This situation is shown to change the form of the cost function and to complicate the determination of optimal policies. The form of the optimal policy is developed, and two example problems are presented in some detail.