Analysis of Perishable-Inventory Systems with Censored Demand Data
Xiangwen Lu, Jing-Sheng Song, Kaijie Zhu
Operations Research · 2008 · Volume 56 · Issue 4
Abstract
We consider a multiperiod inventory system of a perishable product with unobservable lost sales. Demand distribution parameters are unknown and are updated periodically using the Bayesian approach based on the censored historical sales data. We develop an explicit expression of the first-order condition for optimality that demonstrates the key trade-off of the problem. The result generalizes partial characterizations of this trade-off in the literature. It shows that the myopic solution is a lower bound on the optimal inventory level. It also enables us to quantify the expected marginal value of information.
Keywords
stochastic inventory control, censored demand data, Bayesian models, exact analysis, sample-path approach
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