Sequential unreliable newsboy ordering policies

Abstract

In this paper, we show how ordering time can be used as a mechanism to mitigate the supply risks of the unreliable newsboy. We consider the situation where a firm has an option of placing a series of sequential orders such that a new order is placed only after the yield from the previous order is known and derive an optimal order quantity for each ordering stage. The effectiveness of our approach is assessed by comparing its expected cost with the expected cost of the conventional reliable newsboy problem. It is demonstrated that the adverse effect of supply side risks can be almost completely negated by adopting our approach when the combined purchasing and holding costs for a low cost supplier at an earlier stage are equal to those of a high cost supplier at the next stage. Computational experiments suggest that the sequential ordering policy performs better than a simultaneous ordering strategy when customer service level norms become stringent and inventory holding costs decrease.