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Managing Inventory Over a Short Season: Models with Two Procurement Opportunities

College of Business and Management, Northeastern Illinois University, Chicago, Illinois 60625
Krannert School of Management, Purdue University, West Lafayette, Indiana 47907
Krannert School of Management, Purdue University, West Lafayette, Indiana 47907
Indian Institute of Management, Ahmedabad, Vastrapur 380015, India
jli{at}neiu.edu
suresh{at}purdue.edu
dada{at}mgmt.purdue.edu
shailendra{at}iimahd.ernet.in

Motivated by many recent applications reported in the literature, we examine the impact of a second procurement opportunity on inventory management of products with short selling seasons. In our framework, the first order is placed at the start of the preseason and delivered at the start of the selling season; the second order is placed at or after the start of the selling season for subsequent delivery. Under this framework, the decision maker must make three interrelated choices: the first order quantity, when to place the second order, and the second order quantity. Our focus is on elucidating the optimal policy structure for the three interrelated decisions. By casting our models as sequential decision-making problems, we are able to reduce the optimization problems into sequential and embedded searches for the concerned decision variables that allow us to identify the conditions on the economic parameters and demand distribution to effectively facilitate the search for the optimal solutions.

Key Words: newsvendor problem; short selling season; second order opportunity; inventory management; optimal policy
History: Received: April 28, 2005; accepted: November 6, 2007.