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A distribution-free newsvendor model with balking and lost sales penalty

Author

Listed:
  • Liao, Yi
  • Banerjee, Avijit
  • Yan, Changyuan

Abstract

In this paper, we extend the classical single period newsvendor model in an environment of customer balking, which occurs when customers are reluctant to buy a product if its available inventory falls below a threshold level. Since failure to make a sale usually results in a cost penalty, in addition to the opportunity cost of lost sales, we incorporate such costs in our model. Furthermore, we extend our model to include fixed ordering costs. Our analysis is based on the assumption that only the mean and the variance of the distribution of demand are known, without assuming any specific distributional form. We illustrate the concepts developed here through simple numerical examples and demonstrate the effectiveness of our approach by solving a set of 1000 randomly generated test problems.

Suggested Citation

  • Liao, Yi & Banerjee, Avijit & Yan, Changyuan, 2011. "A distribution-free newsvendor model with balking and lost sales penalty," International Journal of Production Economics, Elsevier, vol. 133(1), pages 224-227, September.
  • Handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:224-227
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    References listed on IDEAS

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    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. 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. Moon, Ilkyeong & Choi, Sangjin, 1997. "Distribution free procedures for make-to-order (MTO), make-in-advance (MIA), and composite policies," International Journal of Production Economics, Elsevier, vol. 48(1), pages 21-28, January.
    4. Vairaktarakis, George L., 2000. "Robust multi-item newsboy models with a budget constraint," International Journal of Production Economics, Elsevier, vol. 66(3), pages 213-226, July.
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    Citations

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    Cited by:

    1. Lee, Se Won & Jung, Uk, 2014. "Customer balking behavior in the newsvendor model: Its impact on performance measures and decision under uncertain balking parameters," International Journal of Production Economics, Elsevier, vol. 154(C), pages 274-283.
    2. Yong Zhang & Vladimir Vovk & Weiguo Zhang, 2014. "Probability-free solutions to the non-stationary newsvendor problem," Annals of Operations Research, Springer, vol. 223(1), pages 433-449, December.
    3. repec:spr:annopr:v:238:y:2016:i:1:d:10.1007_s10479-015-1995-1 is not listed on IDEAS
    4. Raza, Syed Asif, 2015. "An integrated approach to price differentiation and inventory decisions with demand leakage," International Journal of Production Economics, Elsevier, vol. 164(C), pages 105-117.
    5. repec:eee:proeco:v:193:y:2017:i:c:p:813-826 is not listed on IDEAS
    6. repec:eee:transe:v:110:y:2018:i:c:p:31-46 is not listed on IDEAS
    7. repec:spr:annopr:v:270:y:2018:i:1:d:10.1007_s10479-016-2296-z is not listed on IDEAS
    8. Raza, Syed Asif & Rathinam, Sivakumar, 2017. "A risk tolerance analysis for a joint price differentiation and inventory decisions problem with demand leakage effect," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 129-145.
    9. repec:spr:joptap:v:171:y:2016:i:3:d:10.1007_s10957-016-0870-9 is not listed on IDEAS
    10. András Prékopa & Anh Ninh & Gabriela Alexe, 2016. "On the relationship between the discrete and continuous bounding moment problems and their numerical solutions," Annals of Operations Research, Springer, vol. 238(1), pages 521-575, March.
    11. Sarkar, Biswajit & Moon, Ilkyeong, 2014. "Improved quality, setup cost reduction, and variable backorder costs in an imperfect production process," International Journal of Production Economics, Elsevier, vol. 155(C), pages 204-213.

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