The newsvendor problem with normal, worst-case and binomial distribution of demand: Managerial implications with examples

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F70883521%3A28140%2F24%3A63587258" target="_blank" >RIV/70883521:28140/24:63587258 - isvavai.cz</a>

Result on the web

<a href="https://www.aimsciences.org//article/doi/10.3934/jimo.2024029" target="_blank" >https://www.aimsciences.org//article/doi/10.3934/jimo.2024029</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.3934/jimo.2024029" target="_blank" >10.3934/jimo.2024029</a>

Result language

angličtina

Original language name

The newsvendor problem with normal, worst-case and binomial distribution of demand: Managerial implications with examples

Original language description

The paper examines the newsvendor problem with demand distributions commonly used in the literature. Optimal order convergence is checked numerically. An important contribution is that the expected profits differ considerably in nominal and relative terms when the profit-loss ratio is low valued while the demand variability is at least moderate. Missed expected profit reaches even 10% of total order cost for a mark-up that equals to the worst case break even one. The optimal order quantities are compared to counterparts derived from sales data. The main managerial implication indicates that the normal distribution solution outperforms distribution-free solutions in predicting the maximal expected profit under empirical demand. Therefore, the MaxiMin solution is recommended to be used in practice to simplify the maximal expected profit calculus and for break-even mark-up evaluation. However, it should not be used to solve the optimal order quantity because the worst-case distribution asymmetry is determined by the profit-to-loss ratio and can be contradictory to the asymmetry of sales data. Moreover, the normal distribution optimum bounded with 0.8 service level commitment shows negative expected profit under mark-up from the range of 5-20% while demand variability is low or moderate proportionally to mark-up.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

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OECD FORD branch

10103 - Statistics and probability

Project

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Continuities

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year

2024

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Journal of Industrial and Management Optimization

ISSN

1547-5816

e-ISSN

1553-166X

Volume of the periodical

20

Issue of the periodical within the volume

12

Country of publishing house

US - UNITED STATES

Number of pages

19

Pages from-to

3628-3646

UT code for WoS article

001176678500001

EID of the result in the Scopus database

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