Evaluating Long-Term Service Performance under Short-Term Forecast Updates

18 Pages Posted: 13 Dec 2019 Last revised: 23 Mar 2020

See all articles by Alain Bensoussan

Alain Bensoussan

University of Texas at Dallas - Naveen Jindal School of Management

Qi Feng

Purdue University - Krannert School of Management

Sirong Luo

Shanghai University of Finance and Economics

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

Managing product availability in a cost effective way has always been a major challenge faced by inventory managers. We study the problem of a firm selling a perishable product with short-term demand patterns and a long-term service target using the newsvendor framework. The newsvendor determines his long-term order at the first stage, and revises the order according to a short-term forecast update at the second stage. He also evaluates a long-term service target for his overall performance on product availability across all possible forecast updates. We characterize his optimal inventory policy that minimizes the expected inventory cost while meeting the long-term service target. Both in-stock rate and fill rate targets are examined.

Keywords: newsvendor model; in-stock rate; fill rate; long-term service level; demand forecast update

JEL Classification: C61, M11, M20

Suggested Citation

Bensoussan, Alain and Feng, Qi and Luo, Sirong and Sethi, Suresh, Evaluating Long-Term Service Performance under Short-Term Forecast Updates (February 1, 2016). Available at SSRN: https://ssrn.com/abstract=3493975 or http://dx.doi.org/10.2139/ssrn.3493975

Alain Bensoussan

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Rd
SM 30
Richardson, TX 75080-3021
United States
9728836117 (Phone)

HOME PAGE: http://www.utdallas.edu/~axb046100/

Qi Feng

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Sirong Luo

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, P.R.China, 200433
China

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

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