Decision-making in a single-period inventory environment with fuzzy demand

Abstract

This paper first defines the profitability to be the probability of achieving a target profit under the optimal ordering policy, and introduces a new index (achievable capacity index; I(A)) which can briefly analyze the profitability for newsboy-type product with normally distributed demand. Note that since the level of profitability depends on the demand mean mu and the demand standard deviation sigma if the related casts, selling price, and target profit are given, the index I(A) is a function of mu and sigma. Then, we assess level performance which examines if the profitability meets designated requirement. The results can determine whether the product is still desirable to order/manufacture. However, mu and sigma are always unknown, and the demand quantity is common to be imprecise, especially for new product. To tackle these problems, a constructive approach combining the vector of fuzzy numbers is introduced to establish the membership function of the fuzzy estimator of I(A). Furthermore, a three-decision testing rule and step-by-step procedure are developed to assess level performance based on fuzzy critical values and fuzzy p-values. (C) 2010 Elsevier Ltd. All rights reserved.