IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v37y2009i3p724-730.html
   My bibliography  Save this article

Mean-variance analysis of the newsvendor model with stockout cost

Author

Listed:
  • Wu, Jun
  • Li, Jian
  • Wang, Shouyang
  • Cheng, T.C.E.

Abstract

We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.

Suggested Citation

  • Wu, Jun & Li, Jian & Wang, Shouyang & Cheng, T.C.E., 2009. "Mean-variance analysis of the newsvendor model with stockout cost," Omega, Elsevier, vol. 37(3), pages 724-730, June.
    • Handle: RePEc:eee:jomega:v:37:y:2009:i:3:p:724-730
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305-0483(08)00038-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
    2. Sounderpandian, Jayavel & Prasad, Sameer & Madan, Manu, 2008. "Supplies from developing countries: Optimal order quantities under loss risks," Omega, Elsevier, vol. 36(1), pages 122-130, February.
    3. Mokrane Bouakiz & Matthew J. Sobel, 1992. "Inventory Control with an Exponential Utility Criterion," Operations Research, INFORMS, vol. 40(3), pages 603-608, June.
    4. Louis Eeckhoudt & Christian Gollier & Harris Schlesinger, 1995. "The Risk-Averse (and Prudent) Newsboy," Management Science, INFORMS, vol. 41(5), pages 786-794, May.
    5. Hua, Zhongsheng & Li, Sijie, 2008. "Impacts of demand uncertainty on retailer's dominance and manufacturer-retailer supply chain cooperation," Omega, Elsevier, vol. 36(5), pages 697-714, October.
    6. Aggarwal, Prabhu & Ganeshan, Ram, 2007. "Using risk-management tools on B2Bs: An exploratory investigation," International Journal of Production Economics, Elsevier, vol. 108(1-2), pages 2-7, July.
    7. Xiao, Tiaojun & Qi, Xiangtong, 2008. "Price competition, cost and demand disruptions and coordination of a supply chain with one manufacturer and two competing retailers," Omega, Elsevier, vol. 36(5), pages 741-753, October.
    8. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    9. Bogataj, David & Bogataj, Marija, 2007. "Measuring the supply chain risk and vulnerability in frequency space," International Journal of Production Economics, Elsevier, vol. 108(1-2), pages 291-301, July.
    10. Lau, Hon-Shiang & Lau, Amy Hing-Ling, 1999. "Manufacturer's pricing strategy and return policy for a single-period commodity," European Journal of Operational Research, Elsevier, vol. 116(2), pages 291-304, July.
    11. Choi, Tsan-Ming & Li, Duan & Yan, Houmin & Chiu, Chun-Hung, 2008. "Channel coordination in supply chains with agents having mean-variance objectives," Omega, Elsevier, vol. 36(4), pages 565-576, August.
    12. Vipul Agrawal & Sridhar Seshadri, 2000. "Impact of Uncertainty and Risk Aversion on Price and Order Quantity in the Newsvendor Problem," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 410-423, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kim, Kyoung-Kuk & Park, Kun Soo, 2014. "Transferring and sharing exchange-rate risk in a risk-averse supply chain of a multinational firm," European Journal of Operational Research, Elsevier, vol. 237(2), pages 634-648.
    2. Arcelus, F.J. & Kumar, Satyendra & Srinivasan, G., 2012. "Risk tolerance and a retailer's pricing and ordering policies within a newsvendor framework," Omega, Elsevier, vol. 40(2), pages 188-198, April.
    3. Choi, Tsan-Ming & Chiu, Chun-Hung, 2012. "Mean-downside-risk and mean-variance newsvendor models: Implications for sustainable fashion retailing," International Journal of Production Economics, Elsevier, vol. 135(2), pages 552-560.
    4. Wu, Jun & Wang, Shouyang & Chao, Xiuli & Ng, C.T. & Cheng, T.C.E., 2010. "Impact of risk aversion on optimal decisions in supply contracts," International Journal of Production Economics, Elsevier, vol. 128(2), pages 569-576, December.
    5. Vaagen, Hajnalka & Wallace, Stein W., 2008. "Product variety arising from hedging in the fashion supply chains," International Journal of Production Economics, Elsevier, vol. 114(2), pages 431-455, August.
    6. Watt, Richard & Vázquez, Francisco J., 2017. "An analysis of insurance demand in the newsboy problem," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1064-1072.
    7. Li, Xiang & Qi, Xiangtong & Li, Yongjian, 2021. "On sales effort and pricing decisions under alternative risk criteria," European Journal of Operational Research, Elsevier, vol. 293(2), pages 603-614.
    8. Jörnsten, Kurt & Lise Nonås, Sigrid & Sandal, Leif & Ubøe, Jan, 2012. "Transfer of risk in the newsvendor model with discrete demand," Omega, Elsevier, vol. 40(3), pages 404-414.
    9. Chun-Hung Chiu & Tsan-Ming Choi, 2016. "Supply chain risk analysis with mean-variance models: a technical review," Annals of Operations Research, Springer, vol. 240(2), pages 489-507, May.
    10. Xue, Weili & Choi, Tsan-Ming & Ma, Lijun, 2016. "Diversification strategy with random yield suppliers for a mean–variance risk-sensitive manufacturer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 90-107.
    11. Zhou, Yan-ju & Chen, Xiao-hong & Wang, Zong-run, 2008. "Optimal ordering quantities for multi-products with stochastic demand: Return-CVaR model," International Journal of Production Economics, Elsevier, vol. 112(2), pages 782-795, April.
    12. Rubio-Herrero, Javier & Baykal-Gürsoy, Melike, 2020. "Mean-variance analysis of the newsvendor problem with price-dependent, isoelastic demand," European Journal of Operational Research, Elsevier, vol. 283(3), pages 942-953.
    13. Ray, Pritee & Jenamani, Mamata, 2016. "Mean-variance analysis of sourcing decision under disruption risk," European Journal of Operational Research, Elsevier, vol. 250(2), pages 679-689.
    14. Jan A. Van Mieghem, 2007. "Risk Mitigation in Newsvendor Networks: Resource Diversification, Flexibility, Sharing, and Hedging," Management Science, INFORMS, vol. 53(8), pages 1269-1288, August.
    15. Sungyong Choi & Andrzej Ruszczyński & Yao Zhao, 2011. "A Multiproduct Risk-Averse Newsvendor with Law-Invariant Coherent Measures of Risk," Operations Research, INFORMS, vol. 59(2), pages 346-364, April.
    16. Qin, Yan & Wang, Ruoxuan & Vakharia, Asoo J. & Chen, Yuwen & Seref, Michelle M.H., 2011. "The newsvendor problem: Review and directions for future research," European Journal of Operational Research, Elsevier, vol. 213(2), pages 361-374, September.
    17. Dai, Yue & Chao, Xiuli, 2016. "Price delegation and salesforce contract design with asymmetric risk aversion coefficient of sales agents," International Journal of Production Economics, Elsevier, vol. 172(C), pages 31-42.
    18. Sen Lin & Bo Li & Antonio Arreola-Risa & Yiwei Huang, 2023. "Optimizing a single-product production-inventory system under constant absolute risk aversion," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 31(3), pages 510-537, October.
    19. Oberlaender, Michael, 2011. "Dual sourcing of a newsvendor with exponential utility of profit," International Journal of Production Economics, Elsevier, vol. 133(1), pages 370-376, September.
    20. Wang, John & Yan, Ruiliang & Hollister, Kimberly & Zhu, Dan, 2008. "A historic review of management science research in China," Omega, Elsevier, vol. 36(6), pages 919-932, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:37:y:2009:i:3:p:724-730. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.