Title: Per-unit cost minimisation of the newsvendor problem

Authors: M.A. Darwish; Abdulrahman R. Alenezi; Majid M. Aldaihani

Addresses: Department of Industrial and Management Systems Engineering, College of Engineering and Petroleum, Kuwait University P.O. Box 5969, 13060, Safat, Kuwait ' Department of Industrial and Management Systems Engineering, College of Engineering and Petroleum, Kuwait University P.O. Box 5969, 13060, Safat, Kuwait ' Department of Industrial and Management Systems Engineering, College of Engineering and Petroleum, Kuwait University P.O. Box 5969, 13060, Safat, Kuwait

Abstract: Due to the advancements in technology, the newsvendor-type items become very common; this led to great interest in newsvendor model in recent years. In this paper, we model the newsvendor problem with the objective of minimising the per-unit cost where the holding cost, setup cost, underage cost as well as overage cost are included in the model. We establish the convexity of the cost function and we then devise easy solution methods to solve the proposed model. It turns out that the proposed solution methods are based on functions similar to the standard normal loss function that is well-known in the classical stochastic inventory model. These functions are tabulated so that the optimal solution can be found without difficulty. Moreover, numerical analysis is conducted on key parameters of the model.

Keywords: cost minimisation; newsvendor problem; inventory modelling; production; per-unit cost; holding cost; setup cost; underage cost; overage cost.

DOI: 10.1504/IJISE.2015.070186

International Journal of Industrial and Systems Engineering, 2015 Vol.20 No.4, pp.497 - 515

Available online: 19 Jun 2015 *

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