A single-period inventory model with inventory update decision: the newsboy problem extension

Abstract

Inventory models use a set of parameters to establish their respected optimal policy. Such parameters are information items that have to be generated (obtained) and, therefore, there is a cost for obtaining them. Traditional inventory models simply ignore the existence of this cost and, therefore, the established optimal policies by these models may not be necessarily optimal in practice. In this paper, based on the requirements dictated by a real-world project, we analyze the impact of information update decisions for a specific class of inventory model (a single-period inventory model). The main difference between the presented model in this paper and newsboy problem is the presence of an inventory update decision and its effect on other inventory decisions. That is to decide when inventory-related information should be updated, how much should be ordered, and what is the maximum level of demand that can be promised to the customers. We formulate these decisions and develop mathematical methods to find the corresponding optimal policies.