The single-period inventory problem: Extension to random yield from the perspective of the supply chain

A special form of the single-period inventory problem (newsvendor problem) with a known demand and stochastic supply (yield) is studied. A general analytic solution for two types of yield risks, additive and multiplicative, is described. Numerical examples demonstrate the solutions for special cases Of uniform distribution yield risks. An analysis of a two-tier Supply chain of customer and producer reveals that the customer may find it optimal to order more than is needed, since a larger order increases the producer's optimal production quantity. (C) 2008 Elsevier Ltd. All rights reserved.