Flexile ordering policy of two-stage newsvendor model with demand updating under demand uncertainty

Abstract

This paper studies the retailer's flexible ordering policy for a two-stage newsvendor model with demand information updating. Demand uncertainty and the limited order quantity are considered at the same time. The optimal order quantities of the first and second-stage are obtained by analyzing the characteristics of the two stage newsvendor model, and an optimal order policy is proposed in the second-stage. Furthermore, we discuss the optimal order quantities of the first and second-stage in the cases of perfect and worthless information. We also compare the limited and unlimited reducing order in the cases of the optimal first-stage and total order quantities. Numerical examples are given to describe the relationships of the total optimal order quantity, market signal, the information accuracy and flexible level.