A Multiordering Newsvendor Model with Dynamic Forecast Evolution

Tong Wang (), Atalay Atasu () and Mümin Kurtuluş ()
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Tong Wang: NUS Business School, National University of Singapore, Singapore 119245
Atalay Atasu: College of Management, Georgia Institute of Technology, Atlanta, Georgia 30308
Mümin Kurtuluş: Owen Graduate School of Management, Vanderbilt University, Nashville, Tennessee 37203

Manufacturing & Service Operations Management, 2012, vol. 14, issue 3, 472-484

Abstract: We consider a newsvendor who dynamically updates her forecast of the market demand over a finite planning horizon. The forecast evolves according to the martingale model of forecast evolution (MMFE). The newsvendor can place multiple orders with increasing ordering cost over time to satisfy demand that realizes at the end of the planning horizon. In this context, we explore the trade-off between improving demand forecast and increasing ordering cost. We show that the optimal ordering policy is a state-dependent base-stock policy and analytically characterize that the base-stock level depends on the information state in a linear ( log-linear ) fashion for additive (multiplicative) MMFE. We also study a benchmark model where the newsvendor is restricted to order only once. By comparing the multiordering and single-ordering models, we quantify the impact of the multiordering strategy on the newsvendor's expected profit and risk exposure.

Keywords: newsvendor; MMFE; forecast evolution; dynamic ordering (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:14:y:2012:i:3:p:472-484

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