On the Newsboy Model with a Cutoff Transaction Size

Rommert Dekker, J.B.G. Frenk (), M.J. Kleijn and A.G. de Kok
Additional contact information
M.J. Kleijn: Erasmus University Rotterdam
A.G. de Kok: Eindhoven University of Technology

No 97-113/4, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: In this paper we analyse the effect of satisfying in a different way customers with an order larger than a prespecified cutoff transaction size, in a simple newsboy setting.For compound Poisson demand with discrete order sizes, we show how to determine the expected costs and the optimal cutoff transaction size. Moreover, by approximating the distribution of the total demand during a period by the normal distribution one can determine an expression for the average costfunction that depends on the cutoff transaction size only. A main advantage of this approximation is that the computational effort is much less. The quality of using the normal approximation is evaluated through a number of numerical experiments, which show that the approximative results are satisfactory.

Keywords: Inventory; cutoff transaction size; newsboy model (search for similar items in EconPapers)
Date: 1997-11-08
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Citations: View citations in EconPapers (2)

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Working Paper: On the newsboy model with a cutoff transaction size (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:19970113

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