An Application of Newsvendor Model on Pipe Stringing Operations of a Gas Pipeline Construction Project

Abstract

With the increasingly fierce market competition, enterprises must maintain their invincible position through continuous improve-ment, innovation, and optimization of their operations to save cost and maximize profit. In this article, the authors introduce a resource allocation technique for a long-distance gas pipeline construction project. Through the introduction of the newsvendor model, the optimal resource allocation, workforce, and equipment, on the pipeline stringing operations, which makes the welding crew perform its functions are the crucial tactic of the operation manager. The idea of this study is to adopt the concept of the newsvendor model for trading between overstock cost and understock cost of gas pipe transportation management. The result of applying has shown that the model provided the optimal control of the pipeline stringing operation in which concern to the uncertainty of relevant factors. In this case study, the total cost is $760.13 per day compared to the total cost of the traditional method, delivering the pipes at an average quantity, which is $1,587.22 per day. As a result, the newsvendor model could save the company money by 52.11% on supply chain and logistics operations. Furthermore, the newsvendor model does not only provide a simple optimization technique but also shows a guide to businesses to think about applying other optimization tools to their business processes and manufacturing processes.