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      Multi-item quick response system with budget constraint

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      Author
      Serel, D. A.
      Date
      2012
      Source Title
      International Journal of Production Economics
      Print ISSN
      0925-5273
      Volume
      137
      Issue
      2
      Pages
      235 - 249
      Language
      English
      Type
      Article
      Item Usage Stats
      129
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      101
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      Abstract
      Quick response mechanisms based on effective use of up-to-date demand information help retailers to reduce their inventory management costs. We formulate a single-period inventory model for multiple products with dependent (multivariate normal) demand distributions and a given overall procurement budget. After placing orders based on an initial demand forecast, new market information is gathered and demand forecast is updated. Using this more accurate second forecast, the retailer decides the total stocking level for the selling season. The second order is based on an improved demand forecast, but it also involves a higher unit supply cost. To determine the optimal ordering policy, we use a computational procedure that entails solving capacitated multi-item newsboy problems embedded within a dynamic programming model. Various numerical examples illustrate the effects of demand variability and financial constraint on the optimal policy. It is found that existence of a budget constraint may lead to an increase in the initial order size. It is also observed that as the budget available decreases, the products with more predictable demand make up a larger share of the procurement expenditure.
      Keywords
      Bayesian estimate
      Budget constraint
      Forecast update
      Inventory
      Multi-product newsvendor problem
      Bayesian estimate
      Budget constraint
      Forecast updates
      Inventory
      Multi-products
      Bayesian networks
      Computer programming
      Forecasting
      Information management
      Inventory control
      Sales
      Budget control
      Permalink
      http://hdl.handle.net/11693/21442
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/j.ijpe.2012.02.004
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      • Department of Management 571
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