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What is Inventory Management with Uncertain Demand about?

In Chapter 8, we introduced inventory theory. We noted that there is often a tradeoff between the fixed costs of placing an order (which will drive us to having fewer orders of larger size) and the inventory holding costs (which will drive us to more frequent orders of smaller size). This tradeoff led to the economic order quantity model. This model, however, like many inventory models, assumes that the demand is deterministic. That is, the EOQ model assumes there is no uncertainty in the demand. In this chapter, we introduce one way of relaxing the assumption that demand is deterministic. We will assume that we have only one chance to place an order with the supplier. While this may seem like a heroic assumption, in fact, this occurs in many situations. The classic example, from which the model gets its name, is that of a local newsstand or convenience store placing orders for newspapers from the publisher. Typically, they place a single order for some number of newspapers. They buy each paper at a cost of c, and sell newspapers at a price of p, with p > c, meaning that they make a profit of p c on each paper they sell. However, demand is uncertain, though there is a known probabi

Author

Mark S. Daskin

Publisher

Springer International Publishing Springer

Published

2021

Language

EN

ISBN

9783031013652

Subjects

Business, Management, Science