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Product selection for newsboy-type products with normal demands and unequal costs

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  • Su, Rung Hung
  • Pearn, Wen Lea

Abstract

In this paper, we consider two newsboy-type products with unequal prices and costs. Both demands are independent and follow normal distributions with unknown parameters [mu] and [sigma]. We study the product selection problem which deals with comparing two products and selecting the one that has a significantly higher profitability, in which the profitability is defined to the probability of achieving a target profit under the optimal ordering policy. The statistical hypothesis testing methodology is performed to tackle this selection problem. Critical value of the test is calculated to determine the selection decision. Sample size required for a designated power and confidence level is also investigated. An application example on comparing English-teaching magazines is presented to illustrate the practicality of our approach.

Suggested Citation

  • Su, Rung Hung & Pearn, Wen Lea, 2011. "Product selection for newsboy-type products with normal demands and unequal costs," International Journal of Production Economics, Elsevier, vol. 132(2), pages 214-222, August.
  • Handle: RePEc:eee:proeco:v:132:y:2011:i:2:p:214-222
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    References listed on IDEAS

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    1. Ouyang, Liang-Yuh & Chang, Hung-Chi, 2002. "A minimax distribution free procedure for mixed inventory models involving variable lead time with fuzzy lost sales," International Journal of Production Economics, Elsevier, vol. 76(1), pages 1-12, March.
    2. Alfares, Hesham K. & Elmorra, Hassan H., 2005. "The distribution-free newsboy problem: Extensions to the shortage penalty case," International Journal of Production Economics, Elsevier, vol. 93(1), pages 465-477, January.
    3. Chen, Shih-Pin & Ho, Yann-Horng, 2011. "Analysis of the newsboy problem with fuzzy demands and incremental discounts," International Journal of Production Economics, Elsevier, vol. 129(1), pages 169-177, January.
    4. Lee, Chih-Ming & Hsu, Shu-Lu, 2011. "The effect of advertising on the distribution-free newsboy problem," International Journal of Production Economics, Elsevier, vol. 129(1), pages 217-224, January.
    5. Mostard, Julien & de Koster, Rene & Teunter, Ruud, 2005. "The distribution-free newsboy problem with resalable returns," International Journal of Production Economics, Elsevier, vol. 97(3), pages 329-342, September.
    6. Khouja, Moutaz, 1995. "The newsboy problem under progressive multiple discounts," European Journal of Operational Research, Elsevier, vol. 84(2), pages 458-466, July.
    7. Kevork, Ilias S., 2010. "Estimating the optimal order quantity and the maximum expected profit for single-period inventory decisions," Omega, Elsevier, vol. 38(3-4), pages 218-227, June.
    8. Ouyang, Liang-Yuh & Wu, Kun-Shan, 1998. "A minimax distribution free procedure for mixed inventory model with variable lead time," International Journal of Production Economics, Elsevier, vol. 56(1), pages 511-516, September.
    9. Hon-Shiang Lau, 1997. "Simple formulas for the expected costs in the newsboy problem: An educational note," European Journal of Operational Research, Elsevier, vol. 100(3), pages 557-561, August.
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    Cited by:

    1. repec:spr:ijsaem:v:8:y:2017:i:4:d:10.1007_s13198-016-0557-5 is not listed on IDEAS
    2. Brito, Anderson J. & de Almeida, Adiel T., 2012. "Modeling a multi-attribute utility newsvendor with partial backlogging," European Journal of Operational Research, Elsevier, vol. 220(3), pages 820-830.
    3. Halkos, George & Kevork, Ilias, 2012. "Validity and precision of estimates in the classical newsvendor model with exponential and rayleigh demand," MPRA Paper 36460, University Library of Munich, Germany.
    4. Halkos, George & Kevork, Ilias, 2012. "Evaluating alternative estimators for optimal order quantities in the newsvendor model with skewed demand," MPRA Paper 36205, University Library of Munich, Germany.

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