Skip to main content
SpringerLink
Log in

A Risk-Averse Inventory Cost Model Using CVaR

  • Conference paper
Proceedings of the 18th Asia Pacific Symposium on Intelligent and Evolutionary Systems, Volume 1

Part of the book series: Proceedings in Adaptation, Learning and Optimization ((PALO,volume 1))

  • 2057 Accesses

Abstract

This paper studies the situation where a risk-averse manager, whose company produces goods catering to uncertain demand, has to decide on the quantity to be produced with the objective of minimizing his cost. Demand uncertainty is a major issue faced by many inventory managers, as overstocking or understocking, will result in the company incurring extra unwanted cost. To tackle this problem, an inventory cost model is proposed in this paper. The model is an extension of the newsvendor framework and is formulated as a minimization problem via conditional Value at Risk (CVaR). The solution to the model is presented and evaluated via a case study. Through this model, the optimal inventory level can be determined and this will serve to be useful for the risk-averse inventory manager.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 169.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 219.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 219.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Xanthopoulos, A., Vlachos, D., Iakovou, E.: Optimal Newsvendor Policies for Dual-sourcing Supply Chains: A Disruption Risk Management Framework. Computers and Operations Research 39, 350–357 (2012)

    Article  MATH  MathSciNet  Google Scholar 

  2. Artzner, P., Delbaen, F., Eber, J.M., Heath, D.: Coherent Measures of Risk. Mathematical Finance 9, 203–208 (1999)

    Article  MATH  MathSciNet  Google Scholar 

  3. Wu, D.: Coordination of Competing Supply Chains with News-vendor and Buyback Contract. International Journal of Production Economics 144, 1–13 (2013)

    Article  Google Scholar 

  4. Guijarro, E., Cardos, M., Babiloni, E.: On the Exact Calculation of the Fill Rate in a Periodic Review Inventory Policy under Discrete Demand Patterns. European Journal of Operational Research 218, 442–447 (2012)

    Article  MATH  Google Scholar 

  5. Yao, F., Wen, H., Luan, J.: CVaR Measurement and Operational Risk Management in Commercial Banks According to the Peak Value Method of Extreme Value Theory. Mathermatical and Computer Modelling 58, 15–27 (2013)

    Article  MATH  Google Scholar 

  6. Cachon, G.P.: The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts. Management Science 50, 222–238 (2004)

    Article  MATH  Google Scholar 

  7. Nenes, G., Panagiotidou, S., Tagaras, G.: Inventory Managment of Multiple Items with Irregular Demand: A Case Study. European Journal of Operational Research 205, 313–324 (2010)

    Article  MATH  Google Scholar 

  8. Jeong, I.-J., Leon, V.J.: A Serial Supply Chain of Newsvendor Problem with Safety Stocks Under Complete and Partial Information Sharing. International Journal of Production Economics 135, 412–419 (2012)

    Article  Google Scholar 

  9. Roh, J., Hong, P., Hokey, M.: Implementation of a Responsive Supply Chain Strategy in Global Complexity: The Case of Manufacturing Firms. Internationl Journal of Production Economics 147, 198–210 (2013)

    Article  Google Scholar 

  10. Wang, J.-C., Lau, A.H.-L., Lau, H.-S.: Practical and Effective Contracts for the Dominant Retailer of a Newsvendor Product with Price-Sensitive Demand. International Journal of Production Economics 138, 46–54 (2012)

    Article  Google Scholar 

  11. Chen, J.: Returns with Wholesale-price-discount Contract in a Newsvendor Problem. Internation Journal of Production Economics 130, 104–111 (2011)

    Article  Google Scholar 

  12. Gotoh, J.-Y., Takano, Y.: Newsvendor Solutions via Condtional Value-at-Risk Minimization. European Journal of Operational Research 179, 80–96 (2007)

    Article  MATH  Google Scholar 

  13. Ryu, K., Yucesan, E.: A Fuzzy Newsvendor Approach to Supply Chain Coordination. European Journal of Operational Research 200, 421–438 (2010)

    Article  MATH  Google Scholar 

  14. Wu, M., Zhu, S.X., Teunter, R.H.: Newsvendor Problem with Random Shortage Cost under a Risk Criterion. International Journal of Production Economics 145, 790–798 (2013)

    Article  Google Scholar 

  15. Wen, P., Qin, L.: The Solution of Newsvendor Problem based on Value-at-Risk. In: 25th Chinese Control and Decision Conference, pp. 1029–1033 (2013)

    Google Scholar 

  16. Tyrrel Rockafellar, R.: Convex Analysis, Part I Section 4, Reprint Revised edn., p. 26. Princeton University Press, NJ (1997)

    Google Scholar 

  17. Tyrrell Rockafellar, R., Uryasev, S.: Optimization of Conditional Value-at-Risk. Journal of Risk 2(3) (2000)

    Google Scholar 

  18. Tyrrel Rockafellar, R., Uryasev, S.: Conditional Value-at-Risk for General Loss Distributions. Journal of Banking and Finance 26, 1443–1471 (2002)

    Article  Google Scholar 

  19. Qiu, R., Shang, J., Huang, X.: Robust Inventory Decision under Distribution Uncertainty: A CVaR-based Optimization Approach. International Journal of Production Economics 153, 13–23 (2014)

    Article  Google Scholar 

  20. Johansen, S.G., Hill, R.M.: The (r, Q) Control of a Periodic-Review Inventory System with Continuous Demand and Lost Sales. International Journal of Production Economics 68, 279–286 (2000)

    Article  Google Scholar 

  21. De Schrijver, S.K., Aghezzaf, E.-H., Vanmaele, H.: Aggregate Constrained Inventory Systems with Independent Multi-product Demand: Control Practices and Theoretical Limitations. International Journal of Production Economics 143, 416–423 (2013)

    Article  Google Scholar 

  22. Khaniyev, T., Turksen, I.B., Gokpinar, F., Gever, B.: Ergodic Distribution for a Fuzzy Inventory Model of Type (s, S) with Gamma Distributed Demands. Expert Systems with Applications 40, 958–963 (2013)

    Article  Google Scholar 

  23. Pettit, T.J., Croxton, K.L., Fisksel, J.: Ensuring Supply Chain Resilience: Development and Implementation of an Assessment Tool. Journal of Business Logistics 34, 46–76 (2013)

    Article  Google Scholar 

  24. Ozen, U., Norde, H., Slikker, M.: On the Convexity of Newsvendor Games. International Journal of Production Economics 133, 35–42 (2011)

    Article  Google Scholar 

  25. Jammernegg, W., Kischka, P.: Risk Perferences of a Newsvendor with Service and Loss Constraints. International Journal of Production Economics 143, 410–415 (2013)

    Article  Google Scholar 

  26. Ogryczak, W., Ruszczynski, A.: Dual Stochastic Dominance and Related Mean-Risk Models. Society for Industrial and Applied Mathematics Journal on Optimization 13, 60–78 (2002)

    MATH  MathSciNet  Google Scholar 

  27. Zhou, Y.-J., Chen, X.-H., Wang, Z.-R.: Optimal Ordering Quantities for Multi-products with Stochastic Demand: Return-CVaR Model. International Journal of Production Economics 112, 782–795 (2007)

    Article  Google Scholar 

  28. Chen, Y.(F.)., Xu, M., Zhang, Z.G.: A Risk-Averse Newsevendor Model Under the CVaR Criterion. Operations Research 57, 1040–1044 (2009)

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Singapore Institute of Manufacturing Technology, Singapore, Singapore

    Jasmine Jiamin Lim, Allan N. Zhang & Puay Siew Tan

  2. Nanyang Technological University, Singapore, Singapore

    Yew Soon Ong

Authors
  1. Jasmine Jiamin Lim
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Allan N. Zhang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Yew Soon Ong
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Puay Siew Tan
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jasmine Jiamin Lim .

Editor information

Editors and Affiliations

  1. Department of Infomatics, Kindai University, Faculty of Science and Technology, Higashi-Osaka, Japan

    Hisashi Handa

  2. Department of Computer Science and Intelligent Systems, Osaka Prefecture University, Osaka, Japan

    Hisao Ishibuchi

  3. School of Computer Engineering, Nanyang Technological University, Singapore, Singapore

    Yew-Soon Ong

  4. Department of Electrical and Computer Engineering, National University of Singapore, Singapore, Singapore

    Kay Chen Tan

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer International Publishing Switzerland

About this paper

Cite this paper

Lim, J.J., Zhang, A.N., Ong, Y.S., Tan, P.S. (2015). A Risk-Averse Inventory Cost Model Using CVaR. In: Handa, H., Ishibuchi, H., Ong, YS., Tan, K. (eds) Proceedings of the 18th Asia Pacific Symposium on Intelligent and Evolutionary Systems, Volume 1. Proceedings in Adaptation, Learning and Optimization, vol 1. Springer, Cham. https://doi.org/10.1007/978-3-319-13359-1_10

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-13359-1_10

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-13358-4

  • Online ISBN: 978-3-319-13359-1

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics

Search

Navigation