Mean-variance analysis for the newsvendor problem

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)22_Publication in policy or professional journal

103 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)1169-1180
Journal / PublicationIEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans
Volume38
Issue number5
Online published22 Aug 2008
Publication statusPublished - Sep 2008
Externally publishedYes

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.

Research Area(s)

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