The multi-product newsboy problem with compound contracts under service level constraint

Abstract

The impact of price contract and service level in multi-product inventory management is considered in this paper. The option price contract is used in supply chain system owning to it can hedge against the demand uncertainty and reduce unnecessary ordering. Under service level constraint, the multi-product newsboy problem with compound contract consisting of a fixed price contact and an option price contact is developed. An algorithm is proposed to solve optimal order quantity of every item after the analysis of the model. Numerical examples and sensitivity analysis are provided to illustrate the advantage of the algorithm and the model, which derive some inventory managerial insights.