unreliable newsboy problem
TRANSCRIPT
Unreliable Newsboy Problem with a forecast update
Summary of a research paper that tackles the problem of coming up with an optimum ordering policy for a seasonal product with a short selling season
Chirag Chadha (110110040)
Nawroz Minsaria
(11D100007)
Ritesh Khichadia
(110100001)
Tej Vaidya (11D100004)
Ritwik Topkar
Amit Sarkar (110100067)
Pratyush Nalla (110100085)
Parveen Dhillon
(110100093)
Extensively studied research problem
Client Firm1
2
2 nonidentical reliable suppliers
Places 2 sequential
orders
for a seasonal product
Before the start of selling season
Extensively studied research problem
Process Timeline:
1st stage order
Observe & analyze market signals
Update Demand 2nd stage order
eg:Market trends, advance booking, similar preseason product sales observed between the 2 stages
Inferences from previous research
Previous research assumed that suppliers are reliable.
They
1. Identified conditions when it is optimal to delay order till 2nd stage
2. Inferred that improved forecast updating process makes a firm less sensitive to lead time uncertainty
But is the assumption that suppliers are reliable, valid?
Uncertain Supply
Suppliers are not reliable because of : 1. Quality Problems 2. In transit losses 3. Supplier mandated order rationing
Further research was done to identify
The researchers 1. concluded that more reliable but expensive supplier = optimal in some situations2. computed Economic Order Quantity(EOQ) for multiple suppliers3. for the unreliable newsboy problem: if demand uncertainty = low, optimal = diversify supply base If not the case, place order with low cost supplier4. Average newsboy order quantity = higher with unreliable suppliers than otherwise5. Considered 2 suppliers under EOQ and newsboy situations 6. attempted unreliable newsboy problem, with multiple orders placed simultaneously with suppliers
ONeffect of uncertainsupply
Optimal inventorypolicy
It investigates effect of like: 1. minimum order guarantee 2. max supply yield
What this paper investigates
ON
Supply uncertainty characteristics
optimal order quantities
Firm Computes
Optimal order policy, to minimize supply chain costs with
1. unreliable suppliers2. demand forecast update
which includes:1. purchase cost2. unmet demand penalty cost3. salvage cost4. holding cost
Process Timeline
Assume: Suppliers provide minimum order guarantee & that supply is constrained by maximum yields
Optimal Ordering Policy
q1 , q2 = orders placed at stages 1 , 2 respectively Demand while placing a 1st stage order is assumed stochastic (non-deterministic)Assume that true demand is revealed after a forecast update before the placement of a 2nd stage orderSecond stage supply uncertainty is represented by a general distribution
Optimal Ordering Policy
Using the expressions obtained for the cost function, the research paper proves the following
It is inferred that minimum order guarantee influences optimal order quantities and total supply chain costs
Impact of minimum order guarantee under uniformly distributed demandassume that demand is uniformly
distributed between a1 and a2
Conclusion
Extensive numerical experiments suggest that Lemma 3 holds true for normal and lognormal demand distributions.
A unit improvement in the minimum order guarantee of a first stage supplier can result in a higher yield adjusted first stage order quantity and a lower cost for a firm, compared to a unit improvement in the first stage maximum yield percentage, although both increase the mean of the first stage supply yield.
It happens because the increase in the first stage minimum order guarantee also reduces the first stage supply variability. This illustrates the importance of increasing the minimum order guarantee from a first stage supplier.
In contrast to a simultaneous ordering process used before a selling season it may be interesting to investigate how a n-stage sequential ordering process can be used as a mechanism to mitigate the supply risks of an unreliable newsboy.
Nurani et al. studied the relationship between process quality, optimal production policy and item issuing policy for an imperfect production process. It will be worthwhile to conduct a similar study.