Mean-variance analysis of the newsvendor model with stockout cost

Jun Wu; Jian Li; Shouyang Wang; T. C.E. Cheng

doi:10.1016/j.omega.2008.02.005

Mean-variance analysis of the newsvendor model with stockout cost

Jun Wu, Jian Li, Shouyang Wang, T. C.E. Cheng^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

156 Citations (Scopus)

Abstract

We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.

Original language	English
Pages (from-to)	724-730
Number of pages	7
Journal	Omega (United Kingdom)
Volume	37
Issue number	3
DOIs	https://doi.org/10.1016/j.omega.2008.02.005
Publication status	Published - Jun 2009
Externally published	Yes

Keywords

Mean-variance
Newsvendor problem
Stockout cost
Supply chain

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10.1016/j.omega.2008.02.005

Cite this

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title = "Mean-variance analysis of the newsvendor model with stockout cost",

abstract = "We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.",

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AB - We study the risk-averse newsvendor model with a mean-variance objective function. We show that stockout cost has a significant impact on the newsvendor's optimal ordering decisions. In particular, with stockout cost, the risk-averse newsvendor does not necessarily order less than the risk-neutral newsvendor. We illustrate this finding analytically for the case where the demand follows the power distribution.

KW - Mean-variance

KW - Newsvendor problem

KW - Stockout cost

KW - Supply chain

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Mean-variance analysis of the newsvendor model with stockout cost

Abstract

Keywords

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