About: Holding cost is a(n) research topic. Over the lifetime, 2738 publication(s) have been published within this topic receiving 55033 citation(s).
01 Aug 2000-Management Science
Abstract: In traditional supply chain inventory management, orders are the only information firms exchange, but information technology now allows firms to share demand and inventory data quickly and inexpensively. We study the value of sharing these data in a model with one supplier, N identical retailers, and stationary stochastic consumer demand. There are inventory holding costs and back-order penalty costs. We compare a traditional information policy that does not use shared information with a full information policy that does exploit shared information. In a numerical study we find that supply chain costs are 2.2% lower on average with the full information policy than with the traditional information policy, and the maximum difference is 12.1%. We also develop a simulation-based lower bound over all feasible policies. The cost difference between the traditional information policy and the lower bound is an upper bound on the value of information sharing: In the same study, that difference is 3.4% on average, and no more than 13.8%. We contrast the value of information sharing with two other benefits of information technology, faster and cheaper order processing, which lead to shorter lead times and smaller batch sizes, respectively. In our sample, cutting lead times nearly in half reduces costs by 21% on average, and cutting batches in half reduces costs by 22% on average. For the settings we study, we conclude that implementing information technology to accelerate and smooth the physical flow of goods through a supply chain is significantly more valuable than using information technology to expand the flow of information.
Topics: Value of information (59%), Supply chain (57%), Collaborative planning, forecasting, and replenishment (56%) ...read more
01 Aug 1994-Management Science
Abstract: In many industries, managers face the problem of selling a given stock of items by a deadline We investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm's objective is to maximize expected revenues Examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry, which markets space such as seats on airline flights, cabins on vacation cruises, and rooms in hotels that become worthless if not sold by a specific time We formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp, price as a function of the stock level and the length of the horizon For a particular exponential family of demand functions, we find the optimal pricing policy in closed form For general demand functions, we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple, fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity Finally, we extend our results to the case where demand is compound Poisson; only a finite number of prices is allowed; the demand rate is time varying; holding costs are incurred and cash flows are discounted; the initial stock is a decision variable; and reordering, overbooking, and random cancellations are allowed
Evan L. Porteus1•Institutions (1)
01 Feb 1986-Operations Research
Abstract: This paper seeks to demonstrate that lower setup costs can benefit production systems by improving quality control. It does so by introducing a simple model that captures a significant relationship between quality and lot size: while producing a lot, the process can go "out of control" with a given probability each time it produces another item. Once out of control, the process produces defective units throughout its production of the current lot. The system incurs an extra cost for rework and related operations for each defective piece that it produces. Thus, there is an incentive to produce smaller lots, and have a smaller fraction of defective units. The paper also introduces three options for investing in quality improvements: i reducing the probability that the process moves out of control which yields fewer defects, larger lot sizes, fewer setups, and larger holding costs; ii reducing setup costs which yields smaller lot sizes, lower holding costs, and fewer defects; and iii simultaneously using the two previous options. By assuming a specific form of the investment cost function for each option, we explicitly obtain the optimal investment strategy. We also briefly discuss the sensitivity of these solutions to changes in underlying parameter values. A numerical example illustrates the results.
01 Jul 1999-Management Science
Abstract: We investigate a two-stage serial supply chain with stationary stochastic demand and fixed transportation times. Inventory holding costs are charged at each stage, and each stage may incur a consumer backorder penalty cost, e.g. the upper stage (the supplier) may dislike backorders at the lower stage (the retailer). We consider two games. In both, the stages independently choose base stock policies to minimize their costs. The games differ in how the firms track their inventory levels (in one, the firms are committed to tracking echelon inventory; in the other they track local inventory). We compare the policies chosen under this competitive regime to those selected to minimize total supply chain costs, i.e., the optimal solution. We show that the games (nearly always) have a unique Nash equilibrium, and it differs from the optimal solution. Hence, competition reduces efficiency. Furthermore, the two games' equilibria are different, so the tracking method influences strategic behavior. We show that the system optimal solution can be achieved as a Nash equilibrium using simple linear transfer payments. The value of cooperation is context specific: In some settings competition increases total cost by only a fraction of a percent, whereas in other settings the cost increase is enormous. We also discuss Stackelberg equilibria.
Evan L. Porteus1•Institutions (1)
01 Aug 1985-Management Science
Abstract: This paper is motivated by the observation that the Japanese have devoted much time and energy to decreasing setup costs in their manufacturing processes and that there has been little in the way of a formal framework available to use to think about such efforts. The object of this paper is to begin to provide such a framework. The framework developed identifies only one aspect of the advantages of reducing setups, namely reduced inventory related operating costs. The other advantages, such as improved quality control, flexibility, and increased effective capacity, are not accounted for in this paper. Nevertheless, substantial reductions in setups may be warranted based solely on the benefits identified in this paper. The approach taken here introduces an investment cost associated with changing the current setup level and adds a per unit time amortization of this cost to the other costs identified in the standard EOQ model. The general problem becomes that of minimizing the sum of a convex and a concave function. In two special cases, the minimization can be carried out explicitly. In one of these cases, numerous interpretations of the results are made, including comparisons of Japanese and American practices. For example, holding other parameters constant, there is a critical sales level such that investment is made in reducing setups if and only if the sales rate is above that level. When such investment is made, the optimal lot size is independent of the sales rate. The paper also addresses the joint selection of the setup cost and the sales rate. Selection of the sales rate is seen as incorporating explicit production and holding costs into the classical monopolist's pricing problem. An explicit solution is obtained for the model postulated.