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Dynamic Inventory Management with Demand Information Updating

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Information Systems Development

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Abstract

This chapter considers the dynamic inventory problem for a single product over a finite horizon and with periodic review. When stockout occurs, the customer may accept a substitute product. The demand can be observed and is assumed to be continuous with a probability density function of a known functional form, but with an unknown parameter. The inventory manager updates the knowledge of the unknown parameter by Bayesian rule and the observed value of demand. We show that the dynamic inventory problem with observed demand can be reduced to a sequence of single-period problem. Based on the result, we get the optimal order level of each period when the substitution probability is known. When the substitution probability is not known, we use the sufficient statistic to update the estimate of the substitution probability and get the similar result.

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Acknowledgment

This work is supported by the National Natural Science Foundation of China (NO. 70861002) and the Science-Technology Project of Educational Department of Jiangxi Province (NO. GJJ09290).

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Authors and Affiliations

  1. School of Information Management, Jiangxi University of Finance & Economics, Nanchang, 330013, China

    Jian Liu & Chunlin Luo

Authors
  1. Jian Liu
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  2. Chunlin Luo
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Corresponding author

Correspondence to Jian Liu .

Editor information

Editors and Affiliations

  1. Durham University, Durham, DH1 3LE, United Kingdom

    William Wei Song

  2. , School of Information Technology, Jiangxi University of Finance and Econom, Nanchang, 330013, Jiangxi, China, People's Republic

    Shenghua Xu

  3. Finance & Economics, School of Information Management, Jiangxi University of, Fenglin Rd., Nanchang, 330013, Jiangxi, China, People's Republic

    Changxuan Wan

  4. UFIDA Software Technology College, Jiangxi University of Finance & Economic, Fenglin Rd., Nanchang, 330013, Jiangxi, China, People's Republic

    Yuansheng Zhong

  5. College of Business & Economics, Dept. Information Technology &, Boise State University, Univesity Dr. 1910, Boise, 83725-1615, Idaho, USA

    Wita Wojtkowski

  6. College of Business & Economics, Dept. Information Technology &, Boise State University, Univesity Dr. 1910, Boise, 83725-1615, Idaho, USA

    Gregory Wojtkowski

  7. Fac. Information Technology, Monash University, Clayton, 3800, Victoria, Australia

    Henry Linger

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© 2011 Springer Science+Business Media, LLC

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Liu, J., Luo, C. (2011). Dynamic Inventory Management with Demand Information Updating. In: Song, W., et al. Information Systems Development. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-7355-9_32

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  • DOI: https://doi.org/10.1007/978-1-4419-7355-9_32

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  • Publisher Name: Springer, New York, NY

  • Print ISBN: 978-1-4419-7205-7

  • Online ISBN: 978-1-4419-7355-9

  • eBook Packages: Computer ScienceComputer Science (R0)

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