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

Kód výsledku v 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>

Výsledek na webu

<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>

Jazyk výsledku

angličtina

Název v původním jazyce

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

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

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

Popis výsledku anglicky

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.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

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OECD FORD obor

10103 - Statistics and probability

Projekt

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Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2024

Kód důvěrnosti údajů

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

Název periodika

Journal of Industrial and Management Optimization

ISSN

1547-5816

e-ISSN

1553-166X

Svazek periodika

20

Číslo periodika v rámci svazku

12

Stát vydavatele periodika

US - Spojené státy americké

Počet stran výsledku

19

Strana od-do

3628-3646

Kód UT WoS článku

001176678500001

EID výsledku v databázi Scopus

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