Newsvendor problems with sequentially revealed demand information |
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Authors: | Jing‐Sheng Song Paul H Zipkin |
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Institution: | 1. Department of Management Science, School of Management, Fudan University, Shanghai 200433, China;2. The Fuqua School of Business, Duke University, Durham, North Carolina 27708 |
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Abstract: | This article analyzes a capacity/inventory planning problem with a one‐time uncertain demand. There is a long procurement leadtime, but as some partial demand information is revealed, the firm is allowed to cancel some of the original capacity reservation at a certain fee or sell off some inventory at a lower price. The problem can be viewed as a generalization of the classic newsvendor problem and can be found in many applications. One key observation of the analysis is that the dynamic programming formulation of the problem is closely related to a recursion that arises in the study of a far more complex system, a series inventory system with stochastic demand over an infinite horizon. Using this equivalence, we characterize the optimal policy and assess the value of the additional demand information. We also extend the analysis to a richer model of information. Here, demand is driven by an underlying Markov process, representing economic conditions, weather, market competition, and other environmental factors. Interestingly, under this more general model, the connection to the series inventory system is different. © 2012 Wiley Periodicals, Inc. Naval Research Logistics 2012 |
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Keywords: | newsvendor problem partially revealed demand information dynamic program series inventory system Markov modulated demand |
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