the effect of supply uncertainty in price setting newsvendor models abstract we consider a price setting newsvendor model in which a firm needs to make joint inventory and pricing decisions before the selling season the supply process is uncertain such that the received quantity is the product of the order quantity and a random yield rate two cost structures are investigated the in house production case in which the firm pays for the input quantity and the procurement case in which the firm pays for the quantity received only our objective is to investigate the effect of yield randomness on optimal decisions and expected profit by using the theory of stochastic comparisons we find that under both cost structures a less variable yield rate leads to a lower optimal price and a higher expected profit moreover we show that in the in house production case a stochastically larger yield rate also results in a lower optimal price and a higher profit but this is not true in the procurement case examples show that the effect of supply uncertainty on optimal order quantity is not universal

the peak of oil production timings and market recognition abstract energy is essential for present societies in particular transportation systems depend on petroleum based fuels that world oil production is set to pass a peak is now a reasonably accepted concept although its date is far from consensual in this work we analyze the true expectations of the oil market participants about the future availability of this fundamental energy source we study the evolution through time of the curves of crude oil futures prices and we conclude that the market participants among them the crude oil producers already expect a near term peak of oil production this agrees with many technical predictions for the date of peak production including our own that point to peak dates around the end of the present decade if this scenario is confirmed it can cause serious social and economical problems because societies will have little time to perform the necessary adjustments

dynamic replenishment from two sources with different yields costs and leadtimes abstract we study a single item periodic review inventory system with two sources of supply in house production and outsourcing the two sources differ in yields costs and leadtimes demands in consecutive periods are independent random variables and stockout is fully backlogged our problem is to characterize the optimal dynamic policy that simultaneously determines the in house production quantity and the outsourcing quantity for each period to minimize the total discounted cost we show that the optimal policy for in house production can be characterized by a threshold and the production quantity is decreasing in the starting inventory the optimal outsourcing policy however is more complex and a threshold type policy is only optimal under a more restrictive assumption about the yields comparative statics about the effects of yield uncertainty outsourcing on the optimal policy and cost performance are discussed

stochastic comparisons in production yield management manufacturing firms routinely commit resources to increase yield rates through product and process improvement initiatives champions of such yield improvement projects may assume that stochastically larger yield rates are beneficial in this note we show that this need not hold even when the contingent production lot sizes are chosen optimally we employ stochastic comparison techniques to show that a yield rate that is smaller in the convex order ensures higher expected profit and we provide a distribution free bound on the size of increase in expected profit we also identify properties of yield rate distributions that do make stochastically larger yield rates beneficial

on the effect of demand randomness on inventories and costs we explore analytically cardinal effects of the extent of demand randomness on optimal inventory levels and the associated expected costs to model changes in demand randomness we make extensive use of a mean preserving transformation commonly used in probabilistic microeconomics as well as the notion of risk pooling aggregating independent demands for the single period news vendor model the order quantity and associated costs are shown to depend on the randomness parameter in a simple and highly interpretable manner we show by a simple example that in some situations risk pooling might neither reduce inventories nor move them closer to the mean or median demand the managerial relevance of such analyses is discussed

joint inventory replenishment and pricing control for systems with uncertain yield and demand we study the joint inventory replenishment and pricing problem for production systems with random demand and yield more specifically we analyze the following single item periodic review model demands in consecutive periods are independent random variables and their distributions are price sensitive the production yield is uncertain so that the quantity received from a replenishment is a random variable whose distribution depends on the production quantity stockouts are fully backlogged our problem is to characterize the optimal dynamic policy that simultaneously determines the production quantity and the price for each period to maximize the total discounted profit we show that the optimal replenishment policy is of a threshold type i e it is optimal to produce if and only if the starting inventory in a period is below a threshold value and that both the optimal production quantity and the optimal price in each period are decreasing in the starting inventory we further study the operational e

the structure of periodic review policies in the presence of random yield this work provides a comprehensive analysis of a general periodic review production inventory model with random variable yield existence of an order point whose value does not depend on yield being random is proved in the single period case without specifying the yield model and using a very general cost structure when yield is a random multiple of lot size the nonorder up to optimal policy is characterized for a finite horizon model the finite horizon value functions are shown to converge to the solution of an infinite horizon functional equation and the infinite horizon order point is shown to be no smaller than when yield is certain

a single period stocking and pricing problem involving stochastic emergency supply abstract we develop a model for determining jointly optimal price and production policy of products with short life cycles subject to partially uncertain supply capacity within the price setting newsvendor framework we consider that demand in excess of the stocking quantity can be met by an emergency order due to the randomness of emergency supply capacity it may not always be possible to satisfy the demand completely assuming that all customers are charged the same price we explore the optimal sourcing and pricing decisions in the commonly used additive and multiplicative demand scenarios the first order conditions imply that the optimal price in the problem with random emergency supply is less than the optimal price associated with the deterministic demand problem when demand uncertainty is additive and it is greater than the optimal price associated with the deterministic demand problem when demand uncertainty is multiplicative we also find that the same type of comparative static applies in the multiplicative uncertainty case when there exists a dual source emergency system consisting of a perfectly reliable supplier and a second supplier with a stochastic capacity

the status of conventional world oil reserves hype or cause for concern the status of world oil reserves is a contentious issue polarised between advocates of peak oil who believe production will soon decline and major oil companies that say there is enough oil to last for decades in reality much of the disagreement can be resolved through clear definition of the grade type and reporting framework used to estimate oil reserve volumes while there is certainly vast amounts of fossil fuel resources left in the ground the volume of oil that can be commercially exploited at prices the global economy has become accustomed to is limited and will soon decline the result is that oil may soon shift from a demand led market to a supply constrained market the capacity to meet the services provided by future liquid fuel demand is contingent upon the rapid and immediate diversification of the liquid fuel mix the transition to alternative energy carriers where appropriate and demand side measures such as behavioural change and adaptation the successful transition to a poly fuel economy will also be judged on the adequate mitigation of environmental and social costs

diversification under supply uncertainty supply chain management is becoming an increasingly important issue especially when in most industries the cost of materials purchased comprises 40 60 of the total sales revenue despite the benefits cited for single sourcing in the popular literature there is enough evidence of industries having two three sources for most parts in this paper we address the operational issue of quantity allocation between two uncertain suppliers and its effects on the inventory policies of the buyer based on the type of delivery contract a buyer has with the suppliers we suggest three models for the supply process model i is a one delivery contract with all of the order quantity delivered either in the current period with probability or in the next period with probability 1 model ii is also a one delivery contract with a random fraction of the order quantity delivered in the current period the portion of the order quantity not delivered is cancelled model iii is similar to model ii with the remaining quantity delivered in the next period we derive the optimal ordering policies that minimize the total ordering holding and penalty costs with backlogging we show that the optimal ordering policy in period n for each of these models is as follows for x a n order nothing for vi n x a n use only one supplier and for x vi n order from both suppliers for the limiting case in the single period version of model i we derive conditions under which one would continue ordering from one or the other or both suppliers for model ii we give sufficient conditions for not using the second more expensive supplier when the demand and yield distributions have some special form for the single period version of models ii and iii with equal marginal ordering costs we show that the optimal order quantities follow a ratio rule when demand is exponential and yields are either normal or gamma distributed

assessing the date of the global oil peak the need to use 2p reserves combining geological knowledge with proved plus probable 2p oil discovery data indicates that over 60 countries are now past their resource limited peak of conventional oil production the data show that the global peak of conventional oil production is close many analysts who rely only on proved 1p oil reserves data draw a very different conclusion but proved oil reserves contain no information about the true size of discoveries being variously under reported over reported and not reported reliance on 1p data has led to a number of misconceptions including the notion that past oil forecasts were incorrect that oil reserves grow very significantly due to technology gain and that the global supply of oil is ensured provided sufficient investment is forthcoming to turn resources into reserves these misconceptions have been widely held including within academia governments some oil companies and organisations such as the iea in addition to conventional oil the world contains large quantities of non conventional oil most current detailed models show that past the conventional oil peak the non conventional oils are unlikely to come on stream fast enough to offset conventional s decline to determine the extent of future oil supply constraints calculations are required to determine fundamental rate limits for the production of non conventional oils as well as oil from gas coal and biomass and of oil substitution such assessments will need to examine technological readiness and lead times as well as rate constraints on investment pollution and net energy return

double marginalization and coordination in the supply chain with uncertain supply abstract this paper explores a generalized supply chain model subject to supply uncertainty after the supplier chooses the production input level decentralized systems under wholesale price contracts are investigated with double marginalization effects shown to lead to supply insufficiencies in the cases of both deterministic and random demands we then design coordination contracts for each case and find that an accept all type of contract is required to coordinate the supply chain with random demand which is a much more complicated situation than that with deterministic demand examples are provided to illustrate the application of our findings to specific industrial domains moreover our coordination mechanisms are shown to be applicable to the multi supplier situation which fills the research gap on assembly system coordination with random yield and random demand under a voluntary compliance regime

exploiting the oil gdp effect to support renewables deployment the empirical evidence from a growing body of academic literature clearly suggests that oil price increases and volatility dampen macroeconomic growth by raising inflation and unemployment and by depressing the value of financial and other assets surprisingly this issue seems to have received little attention from energy policy makers in percentage terms the oil gdp effect is relatively small producing losses in the order of 0 5 of gdp for a 10 oil price increase in absolute terms however even a 10 oil price rise oil has risen at least 50 in the last year alone produces gdp losses that could they have been averted would significantly offset the cost of increased re deployment this paper draws on the empirical oil gdp literature which we summarize to show that i by displacing gas and oil renewable energy investments can help nations avoid costly macroeconomic losses produced by the oil gdp effect and ii that these avoided losses represent a significant external macroeconomic benefit of such investments we show that a 10 increase in re share avoids gdp losses in the range of 29 53 billion in the us and the eu 49 90 billion for oecd these avoided losses offset one fifth of the re investment needs projected by the erec and half the oecd investment projected by a g 8 task force for the us the figures further suggest that each additional kw of renewables on average avoids 250 450 in gdp losses a figure that varies across technologies as a function of annual capacity factors we approximate that the offset is worth 200 kw for wind and solar and 800 kw for geothermal and biomass while we focus only on renewables the gdp offset will apply in some measure to other non fossil technologies including energy efficiency dsm and nuclear the societal valuation of non fossil alternatives must reflect these avoided gdp losses whose benefit is not fully captured by private investors this said we fully recognize that wealth created in this manner does not directly form a pool of public funds that is easily earmarked for renewables support finally the oil gdp relationship has important implications for correctly estimating direct electricity generating cost for conventional and renewable alternatives and for developing more useful energy security and diversity concepts we also address these issues

myopic heuristics for the random yield problem we consider a single item periodic review inventory problem with random yield and stochastic demand the yield is proportional to the quantity ordered with the multiplicative factor being a random variable the demands are stochastic and are independent across the periods but they need not be stationary the holding penalty and ordering costs are linear any unsatisfied demands are backlogged two cases for the ordering cost are considered the ordering cost can be proportional to either the quantity ordered e g in house production or the quantity received e g delivery by an external supplier random yield problems have been addressed previously in the literature but no constructive solutions or algorithms are presented except for simple heuristics that are far from optimal in this paper we present a novel analysis of the problem in terms of the inventory position at the end of a period this analysis provides interesting insights into the problem and leads to easily implementable and highly accurate myopic heuristics a detailed computational study is done to evaluate the heuristics the study is done for the infinite horizon case with stationary yields and demands and for the finite horizon case with a 26 period seasonal demand pattern the best of our heuristics has worst case errors of 3 0 and 5 0 and average errors of 0 6 and 1 2 for the infinite and finite horizon cases respectively

supply and demand functions in inventory models the central issue in supply chain management is to match supply with demand and the heart of a planning model is the modeling of supply and demand functions to allow for analytical tractability the existing literature often assumes almost surely linear supply and demand functions which greatly limits the applicability of the models the goal of this paper is to provide a unified approach to analyze general random supply and demand functions by transforming the problem into one defined on a higher dimension we show that many of the seemingly highly nonlinear supply and demand functions in the almost sure sense are linear in the stochastic sense with this new notion of linearity called stochastic linearity in midpoint our ability to analyze supply chain problems is much enhanced we are able to prove the concavity of the profit function in the transformed supply and demand decisions for a general class of supply and demand functions that include but are not restricted to the ones studied in the

tactical inventory and backorder decisions for systems with predictable production yield abstract we consider a manufacturing system with stochastic demand and predictable production yield the manufacturer has predetermined prices and limited production capacity in each period the manufacturer also has the option to save some inventory for future periods even if there is demand in the current period the demand that is not met is lost or may be backordered for only one period our objective is to maximize the expected profit by choosing optimal produce up to level y t save s t and backorder quantities b t in each period t we formulate this problem as a markov decision process where the state of the system is represented by the net inventory and the yield rate we show that a modified order up to policy y t s t b t is optimal in each period t we also perform computational analysis to examine the effects of production yield on the optimal decisions

how larger demand variability may lead to lower costs in the newsvendor problem in this paper we consider the newsvendor problem intuition may lead to the hypothesis that in this stochastic inventory problem a higher demand variability results in larger variances and in higher costs in a recent paper song 1994a has proved that the intuition is correct for many demand distributions that are commonly used in practice such as for the normal distribution function however this paper shows that there exist demand distributions for which the intuition is misleading i e for which larger variances occur in combination with lower costs to characterize these demand distributions we use stochastic dominance relations

the effect of leadtime uncertainty in a simple stochastic inventory model we study a basic continuous time single item inventory model where demands form a compound poisson process and leadtimes are stochastic the performance measure of interest is the long run average cost order costs are linear so a base stock policy is optimal we focus on the behavior of the optimal base stock level in response to stochastically larger or more variable leadtimes we also investigate the behavior of the corresponding long run average costs we show that a stochastically larger leadtime requires a higher optimal base stock level however a stochastically larger leadtime may not necessarily result in a higher optimal average cost because sometimes the variability effects may dominate on the other hand a more variable leadtime always leads to a higher optimal average cost the effect of leadtime variability on optimal policies depends on the inventory cost structure a more variable leadtime requires a higher optimal base stock level if and only if the unit penalty holding cost rate is high low similar results regarding the effect of leadtime demand are also discussed in this latter case the compound poisson assumption is not necessary

a super criterion for testing portfolio efficiency empirical evidence on finnish stock data abstract in this paper a markovian super criterion is formulated for testing the portfolio efficiency of competing capital market theories the portfolio efficiency of the arbitrage pricing theory apt and the capital asset pricing model capm is tested on finnish weekly price index data over the 1970 1983 time frame the efficiency test results imply that the apt dominates the capm a considerable deviation between the expected pareto frontier and the best expectational frontier according to the apt is observed

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

a note on coordination in decentralized assembly systems with uncertain component yields abstract gurnani and gerchak h gurnani y gerchak coordination in decentralized assembly systems with uncertain component yields european journal of operational research 176 2007 1559 1576 study coordination of a decentralized assembly system in which the demand of the assembler is deterministic and the component yields are random they present incentive alignment control mechanisms under which system coordination is achieved in this note we extend gurnani and gerchak s model to the case of positive salvage value and n asymmetric suppliers and show that the shortage penalty contract which can coordinate gurnani and gerchak s model no longer coordinates the extended model furthermore we present a new kind of contract surplus subsidy contract to coordinate the extended model and prove that the profit of the supply chain under coordination can be arbitrarily divided between the component suppliers and the assembler