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Applied Mathematics and Computation 190 (2007) 410422

An application of bi-level newsboy problem in two

substitutable items under capital cost
a,* b
Barun Das , Manoranjan Maiti
Department of Mathematics, Jhargram Raj College, Jhargram Paschim Medinipur, West Bengal, India
Department of Applied Mathematics with Oceanology and Computer Programming, Vidyasagar University,
Midnapore 721 102, West Bengal, India


A single period newsboy type inventory problem for two substitutable deteriorating items is studied with a resource
constraint. In this system, a wholesaler and several retailers with their probabilistic demands and random lot sizes are con-
sidered. To make it more realistic, it is assumed that the wholesaler sells a certain portion of the stock instantaneously to
the retailers as per their initial demands and later on, sells the rest on push-sale basis if a surplus exists but gets the sale
proceed for this amount at the end of the time period for which an interest is charged and paid by the wholesaler. Follow-
ing newsboy system, retailers also sell a portion of their stocks instantaneously and the rest amount, if it remains, also is
instantaneously sold towards the end of the time period T. The deterioration of the left-over amount after the rst sale of
the retailers is considered for the time period T. As the items are substitutable, several cases of their mutual uses are con-
sidered as subsystem cases. Assuming that wholesaler and retailers under a single management, an integrated model is for-
mulated to maximize a single objective prot function with the space constraint. It is solved through Genetic Algorithm.
Taking wholesaler and retailers to be from dierent management houses, a multi-objective model has been developed, the
expected prot functions are maximized and compromise optimum solutions are obtained via Multi-objective Genetic
Algorithm based on the dominant criteria for each member of the system. Finally, numerical results have been presented
for illustration.
 2007 Published by Elsevier Inc.

Keywords: Newsboy problem; Substitutable items; Random lot size; Probabilistic demand; Capital costs; Genetic Algorithm

1. Introduction

The newsboy problem is a classical inventory problem that is very signicant in terms of both theoretical
and practical considerations. Gallego and Moon [3,4] dened the newsboy problem as the tool to decide the
stock quantity of an item when there is a single purchasing opportunity before the start of the selling period,
and the demand for the item is random. The classical newsboy model assumes that if the order quantity is

Corresponding author.
E-mail addresses:, (B. Das).

0096-3003/$ - see front matter  2007 Published by Elsevier Inc.

B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422 411

larger than the realized demand, a single discount is used to sell excess inventory or that excess inventory is
disposed o. On the other hand, if the order quantity is less than demand, then prot is lost. Here, we intro-
duce the two substitutable items under the capital cost. The objective is to nd the optimum tradeo between
the risk of overstocking (incurring disposal cost) and of under stocking (losing prot).
Several extensions to the newsboy model have been done in the literature [9,10,1] for the single item. More
recently, single item newsboy problem is considered with random lot size [16]. Early extension for multiple
items assumed their independent demands [13]. More recent extension to two items includes substitutability
[8] without constraints. All these extension have been done in single level (i.e., single retailer/single vendor),
although it has widened the application area of classical newsboy problem for multi-level. Recently two-items
newsboy problem has been managed between single-retailer vs. single-vendor [7,11] for non-deteriorate items
without any constraint. To the best of our knowledge, none has investigated the newsboy model with substi-
tutable items for the bi-level system with a wholesaler and multiple retailers.
The inventory models of multi-items under some resource constraints in crisp environment are available in
all reference books [6,14,15]. There are also some research works [2] on deteriorating multi-item inventory
models in stochastic environment. In all the problems, it is assumed that demands of the items are independent
to one another. Now-a-days maintenance of inventory of perishable goods is a problem of major concern to
the modern business organizations as most of the usable deteriorate with time. Consequently Goyal and Giri
[5] are presented an excellent survey in modeling of deteriorating item.
Today Genetic Algorithms (GAs) are used as an optimization technique for decision-making problems. The
Genetic Agorithms are executed iteratively on a set of coded solutions (called population) with three opera-
tors: selection/reproduction, crossover and mutation. Recently, GAs have been applied in dierent areas like
neural network, numerical optimization, pattern recognition, inventory problems [12], etc.
In this paper, a newsboy type substitutable two-items inventory control problem is formulated in bi-level
(wholesaler ! retailers ! customer) system. In level 1, a single wholesaler with instantaneous replenishment
of two substitutable items sells the goods to several retailers instantaneously against their random demands.
The items are rst sold as per the requirements (demands) of the retailers and if their is any excess amount, the
wholesaler adopts the push-sale policy to sell that extra units to the retailers and proceeds against these
amounts are paid by retailers at the end of the time period T, for which an interest is charged and paid by
the wholesaler. The retailers also follow the newsboy type process. A portion of the goods of the retailers
are sold instantaneously against the random demand of the customers and other fraction, if it is there, dete-
riorates at a constant rate over the time T and is sold instantaneously towards the end of time period T.
Assuming wholesaler and retailers are from the same management, a single objective prot function is formu-
lated and solved using Genetic Algorithm. When wholesaler and retailers are dierent, separate objective func-
tions are formulated and compromise solutions are obtained via Multi-objective Genetic Algorithm (MOGA).
Several models under the sub-systems for the dierent types of uses of substitute items are formulated. Finally,
the models are illustrated through numerical results.

2. Assumptions and notation

The mathematical model of the inventory replenishment problem is based on the following assumptions
and notations (for the ith item):

(i) The model is developed for a single period.

(ii) Demands at retailers level are assumed to be probabilistic.
(iii) At retailers level, if an item is not completely exhausted instantaneously then it is stored and after
sometime, it is sold instantaneously at a salvage price which is lower than normal selling price. There
is an unlimited market for little non-fresh materials. The items deteriorates during the storing period.
(iv) As the items are substitutable and deteriorate at a constant rate hi, i = 1, 2.
(v) There exists a limited storage device to each retailer.
(vi) r = interest
Pm rate.
(vii) Qi j1 Qij random lot size to the wholesaler:
(viii) Qij = qij + gjdQi = random lot size to the jth retailer, where gjdQi is purchased at salvage rate.
412 B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422

(ix) dQi = (lot size in hand to the wholesaler)  (normal demand of retailers) = push-sale amount.
(x) dij = (random variable) demand of the jth retailer.
(xi) c1ij = holding cost of the jth retailer.
(xii) c2ij(c2i) = shortage cost for the jth retailer(wholesaler).
(xiii) pi/pdi = purchasing/disposal cost of the wholesaler per unit item.
(xiv) sij(si) = selling price of the jth retailer(wholesaler) per unit item.
(xv) saij(sai) = salvage value to the jth retailer(wholesaler) per unit item.
(xvi) aij, Aj = space required to store a unit and space availability to jth retailer, respectively.
(xvii) SP kRj SP kw jth retailerswholesalers proceeds from sale for kth sub-scenarioscenario:
(xviii) CF kRj CF kw cost function of jth retailerwholesaler for kth sub-scenarioscenario:
(xix) APF kRj APF kw average profit function of jth retailerwholesaler for kth sub-scenarioscenario:
(xx) AEPF kRj AEPF kw average expected profit function of jth retailerwholesaler:

3. Mathematical model

3.1. Model description and formulation

In this system, there is a wholesaler and m-retailers who purchase the substitutable and deteriorating items
from the wholesaler and sell to the customers. The wholesaler replenishes instantaneously Qi units amount of
the ith item at price pi and sells to retailers at price si for the normal, i.e., usual sale and at price sai (salvage
price) for forced sale, if such a situation is warranted within the accounting period T. Hence, in addition to
their normal demands qij, for ith item to the jth retailers are forced to purchase some excess amount, gjdQi
at a reduced price sai as per the situation at wholesalers level. Therefore, for i = 1, 2, j = 1, 2, . . . , m
m X
Qi qij dQi ; dQi gj dQi and Qij qij gj dQi : 1
j1 j1

3.1.1. For wholesaler (level 1)

There are four scenarios, depending on their excess amount dQi for ith item, all of these scenarios are
depicted in Fig. 1. Prot function. Prot at any time t, for the presence of continuous interest r is
APF lw Q1 ; Q2 SP lw  CF lw ; 2

where SP lw Q1 ; Q2 revenue from normal sales salvage value and CF lw Q1 ; Q2 ; t items cost
shortage cost ert disposal cost
or average cost
erT  1
CF 1w Q1 ; Q2 items cost shortage cost disposal cost : 3
The terms SPlw, CFlw, being dierent in dierent scenarios, are given below:
Scenario 1 (dQi P 0 for all i = 1, 2).
m X
X 2
SP 1w Q1 ; Q2 fsi qij sai gj dQi g; 4
j1 i1

CF 1w Q1 ; Q2 fpi Qi pdi dQi g: 5

Scenario 2 (dQi P 0 and dQi < 0 but system is in surplus, i.e., dQi  dQi > 0).
B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422 413

Fig. 1.

m X
X 2
SP 2w Q1 ; Q2 si qij sai gj dQi  dQi ; 6
j1 i1

CF 2w Q1 ; Q2 fpi Qi pdi dQi  dQi g: 7

Scenario 3 (dQi P 0 and dQi < 0 and the system is in shortages. i.e., dQi  dQi > 0).
m X
X 2 X
SP 3w Q1 ; Q2 fsi qij g; where qij Qi ; 8
j1 i1 j1

CF 3w Q1 ; Q2 fpi Qi g c2i dQi  dQi : 9
414 B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422

Scenario 4 (dQi < 0 for all i = 1, 2).

m X
X 2 X
SP 4w Q1 ; Q2 fsi qij g; where qij Qi ; 10
j1 i1 j1

CF 4w Q1 ; Q2 fpi Qi c2i dQi g: 11

The average expected prot EPF lw Q1 ; Q2 due to the policy Q1 ; Q2 at wholesalers level is
Z 1Z 1
AEPF lw Q1 ; Q2 EAPF lw Q1 ; Q2  APF lw Q1 ; Q2  f Q1  dQ1 ;Q2  dQ2 dQ1  dQ1 dQ2  dQ2
1 1
Z Q1 Z Q2 Z Q1 Z 1
APF 1w Q1 ; Q2 APF 2w Q1 ; Q2 for i 1
1 1 1 Q2
Z Q1 Z 1 Z 1 Z Q2
APF 3w Q1 ; Q2 for i 1 APF 2w Q1 ; Q2 for i 2
1 Q2 Q1 1
Z Z Z Z !
1 Q2 1 1
APF 3w Q1 ;Q2 for i 2 APF 4w Q1 ; Q2
Q1 1 Q1 Q2

 f Q1  dQ1 ; Q2  dQ2 dQ1  dQ1 dQ2  dQ2 : 12

3.1.2. For retailers (level 2)

There will be four sub-scenarios depicted in Fig. 2, for each retailer under every scenario of the wholesaler.
Therefore, there will be 4 4m sub-scenarios for m-retailers in the system. Here all these sub-scenarios are
mutually exclusive. Prot function. For all sub-scenarios, prot to the jth retailer for kth sub-scenario is in the form:
hProti = hSelling Pricei  hCost Pricei, where sales process includes the normal and salvage sale and
CF kRj is the expression of cost price due to the purchase, holding/stock-out. Noted that the items considered
here deteriorate during the holding period T. The purchasing cost (PClw) of retailers is the sales proceeds of
the wholesaler for lth (= 1, 2, 3, 4) scenario with respect to that retailer and it is dened as, PClw = SPlw
(excluding the summation of j) in wholesalers level. The Prot functions under kth (= 1, 2, 3, 4) sub-scenario
to the jth retailer subject to the restriction on space availability are given below.
Sub-scenario 1 (when dij 6 Qij for all i = 1, 2). In this case, both items are in excess and the excess amount is
held for period T, then it is disposed o at the salvage rate. Hence,
PF 1Rj d 1j ; d 2j d ij sij saij 1  hi  T  c1ij 1  Qij  d ij  PC lw 13
subject to aij Qij  d ij 6 Aj :

Sub-scenario 2 (let d ij 6 Qij and dij > Qij i 6 i; i 1; 2). In this sub-scenario, there is shortage for ith item
and sucient excess amount of ith item to ll up the shortage of the ith item, i.e., fdij  Qij  Qij  d ij g < 0
( ( ! )   
PF 2Rj d 1j ; d 2j sij d ij  Qij sij Qij saij 1  hi  T  c1ij 1 

Qij  d ij  dij  Qij  PC lw 14

subject to ai fQij  d ij  dij  Qij g 6 Aj :

B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422 415

Fig. 2.

Sub-scenario 3 (let d ij > Qij and dij > Qij i 6 i; i 1; 2). This sub-scenario is same as sub-scenario 2, except
that the amount of ith item is not sucient to ll up the shortage of ith item, therefore the items are neither
stored nor deteriorate, i.e., fdij  Qij  Qij  d ij g > 0
PF 3Rj d 1j ; d 2j fsij Qij  c2ij d ij  Qij g  PC lw : 15

Sub-scenario 4 (when d ij > Qij for all i = 1, 2). In this case, both the items fail to satisfy their own demand,
hence stock-out positions occur for both retailers and we have,
PF 4Rj d 1j ; d 2j fsij Qij  c2ij d ij  Qij g  PC lw : 16
416 B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422

It is noted that in sub-scenarios 3 and 4, space constraint is not applicable.

Z 1 Z 1
EPF Rj Q1j ; Q2j E PF kRj d 1j ; d 2j f d 1j ; d 2j dd 1j dd 2j : 17
1 1

This term is also expressed as a sum of dierent sub-scenarios as in expression (12). Now with the above
expressions, we consider two dierent inventory models.

3.1.3. Model 1 (integrated model)

In integrated model, the wholesaler and retailers are under a single management and sum of their prots is
optimized as a single objective function.
Therefore the problem is to nd optimum qij (for each retailer) and optimum Qi (for the wholesaler) with
respect to scenarios and sub-scenarios, i.e.,
( )
Z Maximize EPF w Q1 ; Q2 EPF Rj Q1j ; Q2j 18

subject to the space constraint (which becomes active depending upon the situations at dierent sub-

3.1.4. Model 2 (non-integrated model)

Here both wholesalers as well as retailers prots are optimized separately assuming them to be under sep-
arate managements.
Therefore in the wholesalerretailers non-integrated model, the problem is to nd optimum qij for each
retailers under corresponding sub-scenarios with respect to a scenario and optimum Qi for wholesaler, which
Z 1 Maximize EPF w Q1 ; Q2 EPF kw Q1 ; Q2 ; 19
Z 1 Maximize EPF Rj Q1j ; Q2j for j 1; 2; . . . ; m 20
subject to the space constraint (which may be active or not).
Proposition 1. The expected profit function of two substitutable items for every scenario and sub-scenario is

Proof. To prove, we consider sub-scenario 4 for two retailers under scenario 4, we have
Z 1Z 1
EPF 4Rj Q1j ; Q2j fs1j Q1j  c21j d 1j  Q1j  s1 Q1j s2j Q2j
Q1j Q2j

 c22j d 2j  Q2j  s2 Q2j gf d 1j ; d 2j dd 1j dd 2j :

EPF 4Rj 2s1j  2s1 c21j 1  F Q2j Q1j :
EPF 4Rj 2s2j  2s2 c22j 1  F Q1j Q2j
EPF 4Rj s1j  s1 c21j 1  F Q2j Q1j  s2j  s2 c22j 1  F Q2j Q2j
dQ1j dQ2j
fs1j  s1 Q1j s2j  s2 Q2j gf Q1j ; Q2j :
B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422 417

0 1
d2 d2
EPF 4Rj dQ1j dQ2j
r2 EPF 4Rj @ A:
d2 d2
dQ2j dQ1j
EPF 4Rj dQ22j

Three conditions to represent EPF 4Rj Q1j ; Q2j to be the concave by Q1j and Q2j are r2 EPF 4Rj is negative
semi-denite (NSD), that means the determinant of r2 EPF 4Rj is negative and dQd 2 EPF 4Rj < 0,
d2  1j
EPF 4Rj < 0. These are satised. Hence the proposition is proved. h

4. Solutions methodology

4.1. Concept of multi-objective

We assume that there are M objective functions. In order to maximize the objective functions, we developed
the following Multi-objective Genetic algorithm (MOGA) on the basis of dominance criteria.

4.1.1. Concept of dominance

A solution X1 is said to dominate the other solution X2, if the following both conditions (i) and (ii) are true:
(i) The solution X1 is no worse than X2 in all objectives, or for all j = 1, 2, . . . , M. (ii) The solution X1 is
strictly better than X2 in at least one objective, or for at least one j = 1, 2, . . . , M. If any of the above condition
is violated, solution X1 does not dominate the solution X2. If X1 dominates solution X2, it is also customary to
write any of the following:

(i) X2 is dominated by X1;

(ii) Xi is non-dominated by X2;
(iii) Xi is non-inferior to X2.

It is intuitive that if a solution Xi dominates another solution X2, solution Xi is better than X2 in the par-
lance of multi-objective optimization. Since the concept of domination allows a way to compare solutions with
multiple objectives, most multi-objective optimization methods use this domination concept to search for non-
dominated solution.

4.1.2. Procedure of MOGA

Step 1: Generate initial population P1 of size N.

Step 2: i 1 [i represent the number of current generation].
Step 3: Select solution from Pi for crossover.
Step 4: Made crossover on selected solution to get child set C1.
Step 5: Select solution from Pi for mutation.
Step 6: Made mutation on selected solution to get solution set C2.
Step 7: Set P 0i P i [ C 1 [ C 2 :
Step 8: Partition P 0i into subsets F1, F2, . . . , Fk, such that each subset contains non-dominated solutions of P 0i
and every solution of Fi dominates every solution of Fi+1 for i = 1, 2, . . . , k  1.
Step 9: Select largest possible integer l, so that number of solutions in the set F1 [ F2 [    [ Fl 6 N.
Step 10: Set Pi+1 = F1 [ F2 [    [ Fl.
Step 11: Sort Fl+1 in decreasing order by crowding distance.
Step 12: Set M = number of solutions in Pi+1.
Step 13: Select rst N  M solutions from set Fl+1.
Step 14: Insert these solution in solution set Pi+1.
Step 15: Set i i + 1.
Step 16: If termination condition does not hold, go to step 3.
418 B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422

Step 17: Output Pi.

Step 18: End.

To implement the above Multi-objective Genetic Algorithm (MOGA) for the proposed model, the follow-
ing basic components are considered: Parameters. Firstly, we set the dierent parameters on which this GA depends. All these are the num-
ber of generation (MAXGEN), population size (POPSIZE), probability of crossover (PXOVER), probability
of mutation (PMU). There is no clear indication as to how large should a population be. If the population is
too large, there may be diculty in storing the data, but if the population is too small, there may not be
enough string for good crossovers. Chromosome representation. Since the proposed problem is non-linear, a real-number representation of
the chromosome is used. In this representation, each chromosome Vi is a string of n number of genes Gij
(i = 1, 2, . . . , POPSIZE and j = 1, 2, . . . , n), where these n number of genes, respectively, denote the number
of decision variables. Initial population production. For each chromosome Vi, every gene Gij which represents the indepen-
dent variable is randomly generated between its boundary (LBj, UBj) where LBj and UBj are the lower and
upper bounds of that variable and gene Gij which are the dependent variables are generated from dierent con-
ditions, until it is feasible, i = 1, 2, . . . , POPSIZE. Crossover operation. The exploration and exploitation of the solution space is made possible by
exchanging genetic information of the current chromosomes. Crossover operates on two parent solutions
at a time and generates ospring solutions by recombining both parent solution features. After selection of
chromosomes for new population, the crossover operation is applied. Here, the whole arithmetic crossover
operation is used. It is done as following way:

(i) Firstly, a random real number r in (0, 1) is generated.

(ii) Secondly, two chromosomes Vk and Vl are randomly selected among population for crossover if
r < PXOVR.
(iii) Then two osprings V 0k and V 0l are produced as follows:

V 0k c  V k 1  c  V l ;
V 0l c  V l 1  c  V k ;

where c 2 [0, 1].

(iv) Repeat the steps (i), (ii) and (iii) POPSIZE/2 number of times. Mutation operation. Mutation operation is used to prevent the search process from converging to local
optima rapidly. Unlike crossover, it is applied to a single chromosome Vi. Here, the uniform mutation oper-
ation is used, which is dened as follows:
ij random number from the range LBj ; UBj ;
where UBj is upper boundary to the corresponding gene. Crowding distance. Crowding distance of a solution is measured using the following rule.

Step 1: Sort the population set according to every objective function values in ascending order of magnitude.
Step 2: For each objective function, the boundary solutions are assigned an innite distance value. All other
intermediate solutions are assigned a distance value equal to the absolute normalized dierence in the
function values of two adjacent solutions. This calculation is continued with other objective functions.
B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422 419

Step 3: The overall crowding distance value is calculated as the sum of the individual distance values corre-
sponding to each objective.

Each objective function is normalized before calculating the crowding distance. Following algorithm is used
for this purpose.

set k = number of solutions in F

for each k
set F kdistance 0
for each m
sort F, in ascending order of magnitude of mth objective
set F 1distance F mdistance M where M is a large number
for i 2 to k  1
F idistance F idistance F i 1m  F i  1m =fmmax  fmmin

Here, F[i]m refers to the mth objective function value of F[i]. fmmax and fmmin are the maximum and minimum
values of the mth objective function.

4.1.3. Non-dominated sorting of a population

In this case, rst, for each solution we calculate two entities: (1) domination count np, the number of solu-
tions which dominate the solution p and (2) Sp, a set of solutions that the solution p dominates. All solutions in
the rst non-dominated front will have their domination count as zero. Now, for each solution p with np = 0,
we visit each member(q) of its set Sp and reduce its domination count by one. In doing so, if for any member q
the domination count becomes zero, we put it in a separate list Q. These members belong to the second non-
dominated front. Now, the above procedure is continued with each member of Q and the third front is iden-
tied. This process continues until all fronts are identied.
For each solution p in the second or higher level of non-domination, the domination count np can be at
most N  1. The algorithm for non-dominated sorting approach is given as

for each p 2 P
set Sp = /where / is a null set
set np = 0
for each q 2 P
if (p dominates q)
SP = Sp [ {q}
elseif (q dominates p)
np = np + 1
if np = 0
420 B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422

Prank = 1
F1 = F1 [ {p}
set i = 1
while Fi 5 /
set Q = /
for each p 2 Fi
for each q 2 Sp
nq = nq  1
if nq = 0
qrank = i + 1
Q = Q [ {q}
Fi = Q

4.2. Solution of SONLP problems

4.2.1. Single-objective Genetic Algorithm (GA)

This method is same as MOGA. The only dierence is that, as in MOGA non-dominated front selection is
not used for SONLP, whereas in GA for SONLP a selection procedure is used. Selection. The purpose of selection is, of course, to emphasize the tter individuals in the population
for recombination in hopes that their ospring will in turn have even higher tness. Selection has to be bal-
anced with variation from crossover and mutation: too strong selection means that sub-optimal highly t indi-
viduals will take over the population, by reducing the diversity needed for further change and progress; too
weak selection will result in too slow evolution. Here, we adopt Roulette Wheel scheme. The selection process
is as follows:
(i)Find total tness of the population F POPSIZE
j1 evalV j;i .
(ii)Find the probability pj of selection for each chromosome Vj,i, by the formula pj =
Peval(V j,i)/F.
(iii)Find cumulative probability qj for each chromosome Vj,i using the formula qj i1 pi .
(iv) Generate a random number r in [0, 1].
(v) If r < q1 then select the rst chromosome V1,i, otherwise select the jth chromosome Vj,i (2 6 j 6 POP-
SIZE) such that qj1 < r 6 qj.
(vi) Repeat (iv) and (v) POPSIZE times and obtain POPSIZE copies of chromosomes.

5. Numerical illustration

To illustrate numerically, for the present problem, bi-variate Normal distribution N m1 ; m2 ; r1 ; r2 ; q is con-
sidered for demand along with the following input data. Here for integration, Simpsons 1/3 formula for two
variables is used.
B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422 421

Table 1
Optimal results of Model 1 by GA
Level Q1 Q2 EPF(Individual) EPF
Wholesaler 110.1 103.2 1785.98 3317.34
Ret1 47.0 47.2 812.34
Ret2 49.0 45.4 719.02

Table 2
A set of pareto-optimal solutions of Model 2 by MOGA
Q11 Q21 EPF(Ret1) Q12 Q22 EPF(Ret2) Q1 Q2 EPF(Wholesaler)
50.5 48.6 767.48 47.5 50.1 696.23 99.9 112.8 1610.23
51.4 48.9 774.48 45.9 47.5 610.31 105.1 101.9 1609.34
49.0 44.1 691.40 50.2 48.4 715.90 102.4 82.9 1419.38
50.3 49.4 743.78 51.5 48.4 712.14 99.87 100.2 1560.93

5.1. For wholesaler

Ranges of Q1 = (70, 110) lb, Q2 = (75, 115) lb, m1 = 95 lb, m2 = 100 lb, r1 = 2.25 lb, r2 = 2.5 lb, q = 0.85,
p1 = 30$, p2 = 35$, s1 = 45$, s2 = 50$, sa1 = 39$, sa2 = 40$, c21 = 2.4$, c22 = 2.5$, r = 0.01.

5.2. For retailer 1

Ranges of q11 = (34, 57) lb, q21 = (39, 60) lb, m1 = 45 lb, m2 = 50 lb, r1 = 1.45 lb, r2 = 1.5 lb, q = 0.9,
s1 = 62$, s2 = 65$, sa1 = 51$, sa2 = 52$, c11 = 3.0$, c12 = 3.5$, c21 = 4.5$, c22 = 4.5$, a11 = 0.1 = a21 culb,
A1 = 1 culb, h1 = 0.04.

5.3. For retailer 2

Ranges of q12 = (34, 57) lb, q22 = (39, 60) lb, m1 = 45 lb, m2 = 50 lb, r1 = 1.45 lb, r2 = 1.5 lb, q = 0.9,
s1 = 62.5$, s2 = 64.5$, sa1 = 50$, sa2 = 52$, c11 = 3.0$, c12 = 3.5$, c21 = 4.5$, c22 = 4.5$, a12 = 0.1 = a22 culb,
A2 = 1 culb, h1 = 0.04.
Now, for Model 1, expression (17) with appropriate constraints is maximized using GA and the optimum
results are presented in Table 1.
Model 2 is a multi-objective problem and expressions (19), (20) are maximized through MOGA. And a set
of pareto-optimum solutions for Model 2 is presented in Table 2.

6. Discussion

For the present input data, the integrated model fetches more prots for wholesaler and retailers (cf. Tables
1 and 2) than the non-integrated model. This is because in the non-integrated model, optimum values of the
decision variables which give maximum prot for one partner (say, retailer 1) may not fetch the maximum
prots for the other partners (i.e., retailer 2, wholesaler). Hence, compromise solutions are obtained for the
multi-objective optimization problem. Some sets of compromise solutions for the maximum prots of whole-
saler and retailers are presented in Table 2 for the non-integrated model.

7. Practical implementation

In a town, normally there exists several small markets connected with a wholesale market. A wholesaler
receives the items, say two types of shes from outside suppliers instantaneously early in the morning and
almost immediately sells the quantities to the retailers of the small markets. Again these retailers also sell
422 B. Das, M. Maiti / Applied Mathematics and Computation 190 (2007) 410422

almost the whole amount of the items immediately in the respective small markets and the rest amount, if any
on the same day after sometime, say at the evening at a lower price. This situation is observed in case of sh
and vegetable business. At both wholesalers and retailers levels, the problem is of Newsboy type. The pro-
posed inventory control system consisting of a wholesaler and m-retailers is considered here for two substitut-
able and deteriorating items. The wholesaler replenishes instantaneously and disposes those to the retailers
immediately, adopting push-sale, if required. Hence, at wholesalers level, there occurs either shortage or sur-
plus (leading to forced sale). Retailers purchase the items from the wholesalers and also sell immediately to the
customers almost the whole amount and the rest is sold a little later, if required. Hence, at retailers level, there
may be also any one of these mutually exclusive events, surplus or shortage for each item. Again as the items
are substitutable, one can replace the other up to a certain extent when a particular type of item is out of stock.
There is an unlimited market for evening sale. The members of the system decide how much quantities to be
ordered in order to have maximum prot.

8. Conclusion

In this article, a classical newsboy problem is transformed into bi-level newsboy problem for two items,
which are substitutable in nature, with probabilistic demand. The problem is solved under the objective of
nding the optimal policy, i.e., under what situation expected prot will be maximum for all partners. This
model can be extended to include more than two items, though it will be very lengthy and cumbersome.


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