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2338. Analysis of a flexible order quantity contract in a newsvendor setting

Invited abstract in session TB-39: Stochastic Models in Logistics, stream Stochastic Modelling.

Tuesday, 10:30-12:00
Room: 35 (building: 306)

Authors (first author is the speaker)

1. Dimitrios Pandelis
Mechanical Engineering, University of Thessaly
2. George Kozanidis
Mechanical Engineering, University of Thessaly

Abstract

We consider a newsvendor model with a retailer facing random demand and a primary supplier characterized by random capacity. The probability distributions of both the demand and the capacity are assumed to be known. The retailer places an order, which may not be satisfied in full because the quantity that can be delivered is capped by the capacity of the supplier. In order to mitigate this supply risk, the retailer places an order to a second supplier, which is reliable but more expensive, under a contract according to which he is allowed to return a portion of the order after the delivery by the primary supplier. We also assume that this option must be exercised before the realization of the demand. We characterize the optimal orders to the two suppliers and present numerical results that provide interesting insights into the effect of various model parameters on these optimal quantities.

Keywords

Status: accepted

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