Inventory Models with Unreliability Supply
Open Access
- Author:
- Ferringer, Brenner
- Area of Honors:
- Industrial Engineering
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Guodong Pang, Thesis Supervisor
Sanjay Joshi, Thesis Honors Advisor - Keywords:
- Newsvendor
Inventory Models
Unreliable Supply - Abstract:
- As supply chains become increasingly stressed, the risks of failing to receive what is ordered is more of a concern than ever. Conventionally, focusing on the bottom line often leads companies to source from more inexpensive suppliers; however, the costs associated with failing to receive a portion or all of an order can change a cost saving decision to one that increases cost. In this thesis, this concern is addressed by including the unreliably of a supplier by replacing the order quantity with a randomly distributed proportion of order that order quantity. First, the classic newsvendor model is expanded to account for unreliable supply. As a single period environment, a holding cost is considered to be the cost of having inventory greater than demand. A general model is formulated and then specific distributions are applied to create more specific models. Computing these models numerically, an analysis is conducted to see how changing various inputs impacts the optimal ordering behavior and the degree in which firms increase order quantity anticipating less then full delivery of supply. A second model is then formulated to study a situation where demand is a function of the price while supply remains unreliable. Initially, it is assumed that price is exogenous; however, a model is subsequently derived that treats both price and order quantity as decision variables. For this model it is analyzed how inputs affect price and order quantity, as well as, how the two decision variables relate to each other. Lastly, a model is derived that considers the trade-off between two distinct suppliers with a homogeneous good. It shows the optimal order behavior when faced with a supplier that is more reliable but more expensive and one that is less expensive, but less reliable. The degree in which the more reliable supplier is favored is studied.