Operations Management: An Integrated Approach, 5th Edition

THE SINGLE-PERIOD INVENTORY MODEL

Some finished goods inventories have very short selling seasons. Items such as holiday decorations, Christmas trees, long-stemmed red roses, newspapers, and magazines are good examples. These products typically have a high value for a relatively short period; then the value diminishes dramatically to either zero or some minimum salvage value. For example, week-old newspapers are inexpensive compared to newspapers offering fresh news. The question is how many of these products you should order to maximize your expected profit.

Single-period model

Designed for use with products that are highly perishable.

The single-period model is designed for products that share the following characteristics:

• They are sold at their regular price only during a single time period.
• Demand for these products is highly variable but follows a known probability distribution.
• Salvage value of these products is less than their original cost, so you lose money when they are sold for their salvage value.

The objective is to balance the gross profit generated by the sale of a unit with the cost incurred for each unit that is not sold until after the primary selling period has elapsed. When demand follows a discrete probability distribution, we can solve the problem using an ...