Newsvendor games

Convex optimization of centralized inventory operations

Samuel Burer, Moshe Dror

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

A finite set of outlets with randomly fluctuating demands bands together to reduce costs by buying, storing and distributing their inventory jointly. This is termed inventory centralization and is a type of risk pooling. The expected centralization cost can be lowered even further, without disrupting the demand behavior at individual outlets, by inducing the outlets to correlate their individual demands. Given that the outlets' demands are normally distributed, the lowering of the centralized cost corresponds to a semidefinite optimization problem. This paper establishes a closed-form optimal solution of the semidefinite program and a fair allocation of the centralized cost at optimality.

Original languageEnglish (US)
Pages (from-to)707-728
Number of pages22
JournalTOP
Volume20
Issue number3
DOIs
StatePublished - Oct 2012

Fingerprint

Convex optimization
Convex Optimization
Game
Costs
Semidefinite Optimization
Semidefinite Program
Pooling
Correlate
Finite Set
Optimality
Closed-form
Optimal Solution
Optimization Problem
Convex games
Newsvendor
Centralization

Keywords

  • Convex optimization
  • Cooperative game theory
  • Inventory centralization
  • Risk pooling

ASJC Scopus subject areas

  • Statistics and Probability
  • Discrete Mathematics and Combinatorics

Cite this

Newsvendor games : Convex optimization of centralized inventory operations. / Burer, Samuel; Dror, Moshe.

In: TOP, Vol. 20, No. 3, 10.2012, p. 707-728.

Research output: Contribution to journalArticle

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