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Newsvendor characterizations for one-warehouse multi-retailer inventory systems with discrete demand under the balance assumption

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  • Mustafa Doğru
  • A. Kok
  • G. Houtum

Abstract

This paper considers a one-warehouse multi-retailer inventory system that faces discrete stochastic demand of the customers. Under the so-called balance assumption (also known as the allocation assumption), base stock policies are optimal. Our main contribution is to show that the optimal base stock levels satisfy newsvendor characterizations, which are in terms of inequalities, and to extend the newsvendor equalities known for the continuous demand model. These characterizations are appealing because they (i) are easy to explain to nonmathematical oriented people like managers and MBA students, (ii) contribute to the understanding of optimal control, (iii) help intuition development by providing direct relation between cost and optimal policy parameters. Copyright Springer-Verlag 2013

Suggested Citation

  • Mustafa Doğru & A. Kok & G. Houtum, 2013. "Newsvendor characterizations for one-warehouse multi-retailer inventory systems with discrete demand under the balance assumption," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 21(3), pages 541-559, September.
    • Handle: RePEc:spr:cejnor:v:21:y:2013:i:3:p:541-559
    DOI: 10.1007/s10100-012-0246-7
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    References listed on IDEAS

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    Cited by:

    1. Helena Gaspars-Wieloch, 2017. "Newsvendor problem under complete uncertainty: a case of innovative products," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(3), pages 561-585, September.

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