Multi-item quick response system with budget constraint
Author
Serel, D. A.
Date
2012Source Title
International Journal of Production Economics
Print ISSN
0925-5273
Volume
137
Issue
2
Pages
235 - 249
Language
English
Type
ArticleItem 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 estimateBudget 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