A Copula Approach to Inventory Pooling Problems with Newsvendor Products

Abstract

This study focuses on the inventory pooling problem under the newsvendor framework. The specific focus is the change in inventory levels when product inventories are pooled. We provide analytical conditions under which an increase (or decrease) in the total inventory levels should be expected. We introduce the copula framework to model a wide range of dependence structures between pooled demands, and provide a numerical study that gives valuable insights into the effect of marginal demand distributions and dependence structure on the effect of pooling to inventory levels.