01516517

Component

This paper addresses the quantity of a product or commodity to hold in a supply chain so as to take best advantage of price fluctuations while allowing for storage and inventory costs. The findings are relevant for products and commodities where the producer or consumer is a price taker. An oil producer and a kerosene (jet fuel) consumer are chosen to illustrate the issues. It is assumed that prices follow a drift-free random walk whereby day-to-day changes are independently and identically normally distributed. For both a producer and a consumer, two decision rules on when to respectively sell or buy are analysed, and in both cases the second rule is proven to be optimal. The relationships between the decision rule, the mean economic holding quantity, the expected profit per day per unit held, price volatility relative to the holding cost, and the extent of price foresight are explored. The results will assist inventory and operations management as well as supply chain design.

This paper was sponsored by TRB committee AV040 Aviation Economics and Forecasting.

01503729

14-2000

English

18p

2014

Transportation Research Board 93rd Annual Meeting

Digital/other

Figures; References; Tables

Airlines; Aviation fuels; Costs; Decision making; Economic analysis; Fuel storage; Inventory control; Prices; Profits; Supply chain management

Aviation; Economics; Energy; I10: Economics and Administration

Transportation Research Board Annual Meeting 2014 Paper #14-2000

TRIS, TRB, ATRI

Jan 27 2014 2:42PM