Abstract
A robust newsvendor model with discrete demand is initiatively studied, and the steps to obtain the optimal ordering decision are provided. The study shows that the optimal ordering decision with discrete demand is very different from that with continuous demand. Besides, the total number of demand points has almost no effect on the performance of both ordering decisions. Furthermore, for an ultralow-profit product, the ordering decision with discrete demand performs significantly better than that with continuous demand.
Highlights
The newsvendor problem has been investigated as a basic problem in stochastic inventory management since the eighteenth century in the economic literature, and it has been universally employed to analyze supply chains with fashionable and perishable products
For an ultralow-profit product, the ordering decision with discrete demand performs significantly better than that with continuous demand
The simplest and most elegant version of the newsvendor problem is an optimal inventory problem in which a newsvendor needs to decide how much newspaper to order for the future demand, where the future demand is uncertain and follows a stationary distribution
Summary
The newsvendor problem has been investigated as a basic problem in stochastic inventory management since the eighteenth century in the economic literature, and it has been universally employed to analyze supply chains with fashionable and perishable products. Since the 50s of the last century, newsvendor problem has been extensively studied in operations research and extended to model various problems in real life. The simplest and most elegant version of the newsvendor problem is an optimal inventory problem in which a newsvendor needs to decide how much newspaper to order for the future demand, where the future demand is uncertain and follows a stationary distribution. This classical newsvendor problem has been extended in many different ways. See Choi [3] for the state-of-theart findings on both theoretical and applied research on the newsvendor problem
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