Newsvendor characterizations for one-warehouse multi-retailer inventory systems with discrete demand under the balance assumption

Mustafa Doğru (), A. Kok () and G. Houtum ()

Central European Journal of Operations Research, 2013, vol. 21, issue 3, 559 pages

Abstract: This paper considers a one-warehouse multi-retailer inventory system that faces discrete stochastic demand of the customers. Under the so-called balance assumption (also known as the allocation assumption), base stock policies are optimal. Our main contribution is to show that the optimal base stock levels satisfy newsvendor characterizations, which are in terms of inequalities, and to extend the newsvendor equalities known for the continuous demand model. These characterizations are appealing because they (i) are easy to explain to nonmathematical oriented people like managers and MBA students, (ii) contribute to the understanding of optimal control, (iii) help intuition development by providing direct relation between cost and optimal policy parameters. Copyright Springer-Verlag 2013

Keywords: Multi-echelon; One-warehouse multi-retailer system; Stochastic discrete demand; Newsvendor characterizations (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10100-012-0246-7

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