Abstract
The optimal inventory control is closely related to an enterprise’s operational efficiency, survival, and development. Market price uncertainty is introduced into the newsvendor model and the uncertainty’s impact on the firm's optimal stocking quantity is discussed. The results show that the impact of stochastic market price on the optimal stocking quantity under a given condition mainly depends on the magnitude of inventory cost. When the inventory cost is low, the market price’s uncertainty leads the firm to increase the stocking quantity. In contrast, when the inventory cost is high, market price uncertainty leads the firm to decrease inventory. Besides, the risk-averse behaviour leads the firm to reduce its stocking quantity.
Highlights
Market prices is analyzed and the effect of price stochasticity on the optimal inventory is investigated in this paper
Consider a retailer in a market that needs to determine the stocking quantity q before the selling season. e information known at the time of order includes the unit inventory cost of product c and the price in the selling season is inscribed by a nonnegative random variable P defined on [0, p], where f(p) is the probability density function of P, F(p) is the probability distribution function, and μ is the mean value of market price. e demand function may be stochastic when the realized price in the selling season is p
The stochasticity of market prices is introduced into the classical newsvendor model to discuss the optimal stocking quantity of the firm. e results show that stochastic market prices lead to higher or lower optimal stocking quantities depending on the magnitude of inventory costs compared to the optimal stocking quantity at a fixed market price
Summary
Consider a retailer in a market that needs to determine the stocking quantity q before the selling season. E demand function may be stochastic when the realized price in the selling season is p. Assume that G(·) is a strictly increasing function. E firm’s revenue is π(q) p min(D(p), q) − cq. The optimal stocking quantity at a determined price as a reference is given. At is, if the firm is informed that the price for the selling season is a deterministic value μ, the optimal stocking quantity is qμ.
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