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A Portfolio Approach to Multi-product Newsvendor Problem with Budget Constraint

In: Handbook of Newsvendor Problems

Author

Listed:
  • Bin Zhang

    (Sun Yat-Sen University)

  • Zhongsheng Hua

    (University of Science and Technology of China)

Abstract

This chapter investigates a portfolio approach to multi-product newsvendor problem with budget constraint, in which the procurement strategy for each newsvendor product is designed as portfolio contract. A portfolio contract consists of a fixed-price contract and an option contract. We model the problem as an expected profit-maximization model, and propose an efficient solution procedure after investigating the structural properties of the model. We conduct numerical studies to show the efficiency of the proposed solution procedure, and to compare three models with different procurement contracts, i.e., fixed-price contract, option contract, and portfolio contract. Numerical results are shown to demonstrate the advantage of the portfolio model, and sensitivity analysis is provided for obtaining some managerial insights.

Suggested Citation

  • Bin Zhang & Zhongsheng Hua, 2012. "A Portfolio Approach to Multi-product Newsvendor Problem with Budget Constraint," International Series in Operations Research & Management Science, in: Tsan-Ming Choi (ed.), Handbook of Newsvendor Problems, edition 127, chapter 0, pages 361-381, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-3600-3_16
    DOI: 10.1007/978-1-4614-3600-3_16
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