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Thenewsvendor model is the cornerstone of most periodic inventory models; however,it distorts the correct timing of inventory costs and thus misses the optimalsolution of the inventory system. This work presents a modification of theclassical newsvendor model that considers the holding cost according to thestock-levels within the selling period rather than according to the stock-levelat the end of it. The selling period for example, a season is divided intoequal-time epochs for example, one-day epochs, where demands are notnecessarily identical across epochs or independently distributed. Amathematical model is formulated to find the optimal order quantity whichmaximizes the expected profit. We show: 1 that the profit function is concave;2 that the structure of the optimality equation is similar to that of theclassical newsvendor model; 3 how to attain the real tradeoff between theexpected profit and the service level. Finally, we propose three heuristics toapproximate the optimal order quantity and two bounds on its value, which areeasy to implement in practice, and evaluate their performances using extensivenumerical examples in a factorial experimental design.

KEYWORDS

Newsvendor, Service Levels, Accounting

Cite this paper

Avinadav, T. 2014 On Real-Time Accounting of Inventory Costs in the Newsvendor Model and Its Effect on the Service Level. Journal of Service Science and Management, 7, 77-91. doi: 10.4236-jssm.2014.72008.





Autor: Tal Avinadav

Fuente: http://www.scirp.org/



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