Optimal Flexibility Configurations in Newsvendor Networks: Going Beyond Chaining and Pairing

Achal Bassamboo (), Ramandeep S. Randhawa () and Jan A. Van Mieghem ()
Additional contact information
Achal Bassamboo: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Ramandeep S. Randhawa: Marshall School of Business, University of Southern California, Los Angeles, California 90089
Jan A. Van Mieghem: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Management Science, 2010, vol. 56, issue 8, 1285-1303

Abstract: We study the classical problem of capacity and flexible technology selection with a newsvendor network model of resource portfolio investment. The resources differ by their level of flexibility, where "level-k flexibility" refers to the ability to process k different product types. We present an exact set-theoretic methodology to analyze newsvendor networks with multiple products and parallel resources. This simple approach is sufficiently powerful to prove that (i) flexibility exhibits decreasing returns and (ii) the optimal portfolio will invest in at most two, adjacent levels of flexibility in symmetric systems, and to characterize (iii) the optimal flexibility configuration for asymmetric systems as well. The optimal flexibility configuration can serve as a theoretical performance benchmark for other configurations suggested in the literature. For example, although chaining is not optimal in our setting, the gap is small and the inclusion of scale economies quickly favors chaining over pairing. We also demonstrate how this methodology can be applied to other settings such as product substitution and queuing systems with parameter uncertainty.

Keywords: inventory production; stochastic models; programming; linear; applications; queues; networks; flexibility; newsvendor networks (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1100.1184 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:56:y:2010:i:8:p:1285-1303

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().