Mean-Variance Analysis for the Newsvendor Problem

The newsvendor problem is a fundamental building block for inventory management with a stochastic demand. The classical newsvendor problem focuses on a sole objective of either minimizing the expected cost or maximizing the expected profit. However, the performance measure with expected value alone...

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Veröffentlicht in:IEEE transactions on systems, man and cybernetics. Part A, Systems and humans man and cybernetics. Part A, Systems and humans, 2008-09, Vol.38 (5), p.1169-1180
Hauptverfasser: Tsan-Ming Choi, Tsan-Ming Choi, Duan Li, Duan Li, Houmin Yan, Houmin Yan
Format: Artikel
Sprache:eng
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Zusammenfassung:The newsvendor problem is a fundamental building block for inventory management with a stochastic demand. The classical newsvendor problem focuses on a sole objective of either minimizing the expected cost or maximizing the expected profit. However, the performance measure with expected value alone is insufficient, and it ignores the risk preferences of the decision makers. As a result, we carry out a mean-variance analysis of the newsvendor problem. We construct analytical models and reveal the problem's structural properties. We propose the solution schemes which help to identify the optimal solutions. Interesting findings regarding the efficient frontier, the case with a stockout penalty cost, and the safety-first objective are discussed.
ISSN:1083-4427
2168-2216
1558-2426
2168-2232
DOI:10.1109/TSMCA.2008.2001057