IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

A Newsvendor Model with Unreliable Suppliers

Listed author(s):
  • Dada, Maqbool

    (Purdue U)

  • Petruzzi, Nicholas C.

    (U of Illinois at Urbana-Champaign)

  • Schwarz, Leroy B.

    (Purdue U)

Registered author(s):

    We consider the problem of a newsvendor that is served by multiple suppliers, where any given supplier may be unreliable. By unreliable we simply mean that the marginal amount received from a supplier is no more than, and typically is less than, the marginal amount ordered from the supplier. In this setting, the newsvendor needs to determine (1) whether or not to place an order with a given supplier, and (2) if so, then for how much? To address these questions, we develop a general framework in which the newsvendor can diversify its risk of inadequate delivery amounts by spreading its orders among any number and combination of available suppliers that differ in terms of cost and (delivery) reliability. Ultimately, we find that the newsvendor model with unreliable suppliers has the same structural properties as a newsvendor model in which all suppliers are reliable but have limited capacity. Our resulting contribution is two?fold: First, we establish properties of the optimal solution and develop corresponding insights into the trade?off between cost and reliability. Second, we perform comparative statics on the optimal solution, with a particular emphasis on investigating how changes in suppliers cost or reliability affect the newsvendor's ordering decisions and customer service level.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 03-0112.

    in new window

    Date of creation: Aug 2003
    Handle: RePEc:ecl:illbus:03-0112
    Contact details of provider: Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    in new window

    1. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    2. 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.
    3. Minner, Stefan, 2003. "Multiple-supplier inventory models in supply chain management: A review," International Journal of Production Economics, Elsevier, vol. 81(1), pages 265-279, January.
    4. Yunzeng Wang & Yigal Gerchak, 1996. "Periodic Review Production Models with Variable Capacity, Random Yield, and Uncertain Demand," Management Science, INFORMS, vol. 42(1), pages 130-137, January.
    5. Jan A. Van Mieghem & Nils Rudi, 2002. "Newsvendor Networks: Inventory Management and Capacity Investment with Discretionary Activities," Manufacturing & Service Operations Management, INFORMS, vol. 4(4), pages 313-335, August.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ecl:illbus:03-0112. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.