The loss‐averse newsvendor problem with supply options

In this article, we consider a loss‐averse newsvendor with stochastic demand. The newsvendor might procure options when demand is unknown, and decide how many options to execute only after demand is revealed. If the newsvendor reserves too many options, he would incur high reservation costs. Yet reserving too few could result in lost sales. So the newsvendor faces a trade‐off between reservation costs and losing sales. When there are multiple options available, the newsvendor has to consider how many units of each to reserve by studying the trade‐off between flexibility and costs. We show how the newsvendor's loss aversion behavior affects his ordering decision, and propose an efficient algorithm to compute his optimal solution in the general case with n options. We also present examples showing how the newsvendor's ordering strategy changes as loss aversion rises. © 2014 Wiley Periodicals, Inc. 62:46–59, 2015     

Book Reviews

The purpose of this article is to analyse British strategic nuclear targeting between 1974 and 1979, prior to the successful completion of the sophisticated modification to Polaris submarine-missile system codenamed Chevaline. It will use as its starting point the parameters for UK strategic nuclear targeting, and the foundation of the ‘Moscow Criterion’, prior to the deployment of Britain's Polaris submarines which began in 1968. It will then discuss the recommendation by the Chiefs of Staff to retarget Polaris in 1975/76 and the implications of that recommendation in terms of the British approach to strategic nuclear deterrence. The article will conclude with an assessment of these retargeting decisions on the decision to replace Polaris with the US Trident system in 1980.     

A RANDOM RATIONING MECHANISM WHICH REDUCES THE RISKS OF NO SON LEFT AT HOME

This paper empirically re‐examines the long‐run co‐movements and the causal relationships between GDP and defence expenditures in a multivariate model with real defence expenditure per capita (ME), real GDP per capita (GDP), and real capital stock per capita (K). We apply the view of the aggregate production function to construct the empirical model. Using up‐to‐date data for 27 OECD countries and 62 non‐OECD countries for the 1988–2003 period, we combine cross‐sectional and time series data to re‐investigate the relationship between GDP and ME. Previous studies using time series data may have yielded misleading results on account of the short time span of typical datasets. By contrast, we use recently developed panel unit root tests and heterogeneous panel cointegration tests, and conclude that there is fairly strong evidence in favour of the hypothesis of a long‐run equilibrium relationship between GDP and ME. The long‐run panel regression parameter results, such as the fully modified OLS, indicate that a positive relationship between GDP and ME only holds for OECD countries, whereas a negative relationship from ME to GDP only exists in non‐OECD countries under examination and in the panel as a whole. Furthermore, by implementing the dynamic panel‐based error correction model, we determine that GDP and ME lack short‐run causalities, but do show long‐run bidirectional causalities in both OECD and non‐OECD countries.     

THE LONG‐RUN RELATIONSHIP BETWEEN DEFENCE EXPENDITURES AND GDP IN TAIWAN

Using the Solow–Swan growth model and the time‐trend included in the aggregate production function, this study applies the multivariate cointegration approach to re‐investigate the long‐run and causal relationships between defence expenditures and GDP while controlling for capital and labour input in Taiwan during the 1955–2002 period. It examines the long‐run causal relationship using the weak exogeneity test and utilizes general impulse response functions to determine whether a shock to defence expenditures affects economic growth or vice versa. Our findings provide substantive evidence in favour of the existence of a long‐run equilibrium cointegrated relationship between defence expenditures, GDP, labour and capital stock. The results of the weak exogeneity test indicate that a bi‐directional causal relationship exists in the long‐run between defence expenditures and GDP. Thus, the main policy implication that emerges from the long‐run results is that increasing defence expenditures in Taiwan is an effective means to boost overall economic performance and, with this improved economy, it should then be able to increase its defence expenditures further. Lastly, from our dynamic vector error correction model estimations, it is found that defence expenditures are a major means of adjusting for disequilibria that occur within the system.     

9/11: WHAT DID WE KNOW AND WHEN DID WE KNOW IT?

In February 1998, Osama Bin Laden published a signed statement calling for a fatwa against the United States for its having ‘declared war against God’. As we now know, the fatwa resulted in the unprecedented attack of 9/11. The issue of whether or not 9/11 was in any way predictable culminated in the public debate between Richard Clarke, former CIA Director George Tenet and the White House. This paper examines whether there was any evidence of a structural change in the terrorism data at or after February 1998 but prior to June 2001, controlling for the possibility of other breaks in earlier periods. In doing so, we use the standard Bai–Perron procedure and our sequential importance sampling (SIS) Markov Chain Monte Carlo (MCMC) method for identifying an unknown number of breaks at unknown dates. We conclude that sophisticated statistical time‐series analysis would not have predicted 9/11.     

A mathematical formulation and efficient heuristics for the dynamic container relocation problem

The container relocation problem (CRP) is concerned with emptying a single yard‐bay which contains J containers each following a given pickup order so as to minimize the total number of relocations made during their retrieval process. The CRP can be modeled as a binary integer programming (IP) problem and is known to be NP‐hard. In this work, we focus on an extension of the CRP to the case where containers are both received and retrieved from a single yard‐bay, and call it the dynamic container relocation problem. The arrival (departure) sequences of containers to (from) the yard‐bay is assumed to be known a priori. A binary IP formulation is presented for the problem. Then, we propose three types of heuristic methods: index based heuristics, heuristics using the binary IP formulation, and a beam search heuristic. Computational experiments are performed on an extensive set of randomly generated test instances. Our results show that beam search heuristic is very efficient and performs better than the other heuristic methods.Copyright © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 101–118, 2014     

Operations sequencing for a multi‐stage production inventory system

This article studies operations sequencing for a multi‐stage production inventory system with lead times under predictable (deterministic) yield losses and random demand. We consider various cases with either full or partial release of work‐in‐process inventories, for either pre‐operation or post‐operation cost structures, and under either the total discounted or average cost criteria. We derive necessary and sufficient criteria for the optimal sequence of operations in all cases. While the criteria differ in their specific forms, they all lead to the same principal: those operations with (1) lower yields, (2) lower processing costs, (3) longer lead times, and (4) lower inventory holding costs should be placed higher upstream in the system.Copyright © 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 144–154, 2014     

Quality control and the sales process

Product quality is emerging as a major strategic instrument for competition. The purpose of this article is to assess the effects of quality control on sales, and, vice versa, the effects of the sales process on quality control. A model relating quality control and the sales process (advertising, repeat purchase, and word-of-mouth effects) is developed to evaluate the above relationships. Two special cases, with degenerate and beta distribution for defect items in the production lot, are analyzed in detail. In the former case, analytical results for the optimal quality control schemes are obtained, whereas in the latter, efficient bounds are derived to search for the optimal scheme. It is shown, analytically and numerically, that the sales parameters have significant impact on whether more “stringent” or “tighter” quality control is warranted. Future research directions are also discussed.     

Rectilinear m-Center problem

In this article we consider the unweighted m-center problem with rectilinear distance. We preent an O(n^m–2 log n) algorithm for the m-center problem where m ≥ 4.