THE NEWSVENDOR-PROBLEM IN A GLOBAL-MARKET - OPTIMAL CENTRALIZED AND DECENTRALIZED CONTROL POLICIES FOR A 2-MARKET STOCHASTIC INVENTORY SYSTEM

The global markets of today offer to the ''style goods'' producer more selling opportunities and pose new challenges in production planning and coordination. From a production management standpoint the opportun ity to exploit the difference in timing of the selling season of geogr aphically dispersed markets for ''style goods'' is important for impro ving the firm's profitability. In this paper we examine the above issu e with an insightful model of a producer of ''style goods'' selling th e goods to two markets (a primary and a secondary market) with nonover lapping selling seasons. We refer to this problem as the ''global news vendor'' problem. For the above two market stochastic inventory system s we first develop optimal centralized control policies. Then we demon strate the suboptimality of decentralized production control policies, with the production centers at each market treated as independent pro fit centers and a constant transfer price being used to coordinate the ir production. We propose as an effective alternative a decentralized production control structure with a nonlinear pricing scheme for produ ction coordination among centers administered through an intermediate organizational unit. In our modeling, we explicitly consider the effec ts of exchange rate uncertainty on the production planning decisions.