Jeppesen Uses a Dynamic-Programming-Based DSS to Manage Inventory

Abstract

We developed a system for managing inventory at Jeppesen Sanderson, Inc., a major provider of aviation-information products. The system determines order quantities for charts used in flight manuals. These charts contain essential safety information that changes frequently, making standard methods for inventory management ineffective. We formulated the problem as a dynamic programming model and developed a simple heuristic-solution procedure for determining order quantities. Based on this procedure, we also developed a decision support system (DSS) and implemented it for 600 of the most expensive Jeppesen charts. The system has been in use since August 1998, generating actual annual cost reductions of over $800,000.

The Distributionally Robust Inventory Strategy of the Overconfident Retailer under Supply Uncertainty

“…From (11), along with γ = 1 − α, we show that the retailer's overconfidence level γ is preferably bigger than 1 − α 0 . The critical value α 0 is only associated with the profit margin a and the yield rate distribution parameters µ and σ.…”

“…Unless otherwise specified, we focus on the case when the practical condition holds since the managerial interpretation is intuitive if the condition is unsatisfied. Thus, the retailer only places an order of the constant D. For ease of description, we rewrite the condition as shown in (11).…”

“…Equation (11) directly follows from the practical condition, and the feasible region for α is [0, α 0 ]. If α m < min{α 0 , 1}, we show q * is increasing in α in [0, α m ] and decreasing in [α m , α 0 ] or [α m , 1].…”

“…The overconfident decision-maker tends to underestimate the actual volatility and believes their estimate is more accurate than it actually is. For example, reference [11] introduces the case of a company named Jeppesen Sanderson from America. They show that overconfident managers consistently order too many, which results in USD 800,000 in additional expenses.…”

Can Hexaco-100 Personality Inventory Predict Newsvendor Behavior?

“…For instance Fisher and Raman (1996) have shown with Sport Obermeyer case that the order decisions are consistently below the optimal. On the other hand, with the Jeppesen Sanderson case Katok et al (2001) show that the order decisions are systematically over the optimal. Corbett and Fransoo (2007) have conducted a survey study with small business owners and showed that the newsvendor logic is used for products with high profit margin but not for the best-selling products.…”