“Extra!” Using the Newsvendor Model to Optimize War Reserve Storage

Abstract

The United States Marine Corps (USMC) Installation and Logistics Command requested a study for determining appropriate inventory levels of war reserve materiel to meet future operational needs under surge demands in uncertain environments. This study sought to explore a potential approach by using the common newsvendor model, but modified for a military scenario. The authors’ novel version of this core concept considers the purchase and storage costs of an item and proposes an intangible cost function to capture the consequences of a shortage. Further, they show a sample application of the model using a ubiquitous military item—the BA-5590/U battery. The output of the model provides USMC with a new tool to optimize inventory levels of a given item of interest, depending on scenario inputs.