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Optimal single period order size under uncertain demand incorporating freight costs

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  • P. L. Abad

Abstract

There is now greater scrutiny of freight costs by buyers who want to control inbound logistics cost. In this study, we consider the lot size problem faced by a buyer who plans product availability for a style good which has uncertain demand for the season. The buyer has only one opportunity to procure the good prior to the season and is responsible for paying for the freight. A buyer may opt for paying for the freight if he sees an opportunity for savings on freight costs. In some cases, the supplier may allow only for FOB origin orders. The order may span several truckload shipments and a remnant less-than-truckload shipment. We represent the freight cost for a less-than-truckload shipment by freight tariffs offered by public motor carriers, in practice. These freight tariffs typically entail six to seven breakpoints in terms of the weight of the shipment.

Suggested Citation

  • P. L. Abad, 2006. "Optimal single period order size under uncertain demand incorporating freight costs," International Journal of Services and Operations Management, Inderscience Enterprises Ltd, vol. 2(1), pages 95-108.
    • Handle: RePEc:ids:ijsoma:v:2:y:2006:i:1:p:95-108
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    Cited by:

    1. Hua, Guowei & Wang, Shouyang & Cheng, T.C.E., 2012. "Optimal order lot sizing and pricing with free shipping," European Journal of Operational Research, Elsevier, vol. 218(2), pages 435-441.
    2. Hua, Guowei & Wang, Shouyang & Cheng, T.C.E., 2012. "Optimal pricing and order quantity for the newsvendor problem with free shipping," International Journal of Production Economics, Elsevier, vol. 135(1), pages 162-169.
    3. Andrew Manikas & Michael Godfrey, 2018. "A Spreadsheet Approach For Incorporating Actual Motor Carrier Freight Rates And External Environmental Costs In A Newsvendor Model," International Journal of Management and Marketing Research, The Institute for Business and Finance Research, vol. 11(1), pages 55-72.

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