A Newsvendor Model with Initial Inventory and Two Salvage Opportunities

C. VAN DELFT, A. Cheaitou, Z. Jemai, Y. Dallery

Journal on Systemics, Cybernetics and Informatics

2011, vol. 9, n°3, pp.30-36

Departments: Information Systems and Operations Management, GREGHEC (CNRS)

Keywords: Newsvendor model, Initial inventory, Lost sales, Salvage opportunities, Concave optimisation and threshold levels

In this paper, we develop an extension of the newsvendor model with initial inventory. In addition to the usual quantity ordered at the beginning of the horizon and the usual quantity salvaged at the end of the horizon, we introduce a new decision variable: a salvage opportunity at the beginning of the horizon, which might be used in the case of high initial inventory level. We develop the expression of the optimal policy for this extended model, for a general demand distribution. The structure of this optimal policy is particular and is characterized by two threshold levels. Some managerial insights are given via numerical examples.