Abstract
Most papers on the newsboy problem assume that excess inventory is either sold after discount or discarded. In the real world, overstocks are handled with multiple discounts, upgrades, or a combination of these measures. For example, a seller may offer a series of progressively increasing discounts for units that remain on the shelf, or the seller may use incrementally applied innovations aimed at stimulating greater product sophistication. Moreover, the normal distribution does not provide better protection than other distributions with the same mean and variance. In this paper, we find the differences between normal distribution approaches and distribution-free approaches in four scenarios with mean and variance of demand as the only available data to decision-makers. First, we solve the newsboy problem by considering multiple discounts. Second, we formulate and solve the newsboy problem by considering multiple upgrades. Third, we formulate and solve a mixed newsboy problem characterized with multiple discounts and upgrades. Finally, we extend the model to solve a multiproduct newsboy problem with a storage or a budget constraint and develop an algorithm to find the solutions of the models. Concavity of the models is proved analytically. Extensive computational experiments are presented to verify the robustness of the distribution-free approach. The results show that the distribution-free approach is robust.
Highlights
In general selling situations, the information on demand distribution is limited
We find the differences between normal distribution approaches and distribution-free approaches in four scenarios with mean and variance of demand as the only available data to decision-makers
We extend the multiproduct newsboy problem to the situation in which the newsboy problem is characterized by a budget constraint and multiple discounts to stimulate demand under the traditional and distribution-free approaches and consider the cost of improving the quality of the product
Summary
The information on demand distribution is limited. Often, sellers are only provided with an educated guess of the mean and the variance. Khouja [26] extended the newsboy problem by considering price-dependent demand and multiple discounts to sell excess inventory. Such extensions have been thoroughly studied for deterministic economic-order quantity models. We extend the multiproduct newsboy problem to the situation in which the newsboy problem is characterized by a budget constraint and multiple discounts to stimulate demand under the traditional and distribution-free approaches and consider the cost of improving the quality of the product. We extend the newsboy problem to consider the situation in which the seller applies progressive multiple discounts, upgrades, or their combination, to enhance product flow and profit.
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