Mean-variance analysis for the newsvendor problem

Tsan Ming Choi, Duan Li, Houmin Yan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

98 Citations (Scopus)

Abstract

The newsvendor problem is a fundamental building block for inventory management with a stochastic demand. The classical newsvendor problem focuses on a sole objective of either minimizing the expected cost or maximizing the expected profit. However, the performance measure with expected value alone is insufficient, and it ignores the risk preferences of the decision makers. As a result, we carry out a mean-variance analysis of the newsvendor problem. We construct analytical models and reveal the problem's structural properties. We propose the solution schemes which help to identify the optimal solutions. Interesting findings regarding the efficient frontier, the case with a stockout penalty cost, and the safety-first objective are discussed.
Original languageEnglish
Pages (from-to)1169-1180
Number of pages12
JournalIEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans
Volume38
Issue number5
DOIs
Publication statusPublished - 16 Sep 2008

Keywords

  • Inventory
  • Mean-variance (MV) analysis
  • Newsvendor problem
  • Risk
  • Risk attitude

ASJC Scopus subject areas

  • Control and Systems Engineering
  • Software
  • Human-Computer Interaction
  • Computer Science Applications
  • Electrical and Electronic Engineering

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