Coping with Demand Shocks: A Distribution-Free Algorithm for Solving Newsvendor Problems with Limited Demand Information

34 Pages Posted: 9 Apr 2009

See all articles by Shawn O'neil

Shawn O'neil

affiliation not provided to SSRN

Xuying Zhao

University of Notre Dame

Daewon Sun

University of Notre Dame

Amitabh Chaudhary

University of Notre Dame

Jerry Wei

University of Notre Dame

Date Written: April 8, 2009

Abstract

We present a new, robust, and e ective algorithm for the multiple-period newsvendor problem when there is little demand information available. In today's competitive market, demand volume and even distribution can change quickly. The algorithm needs only a rough estimate of the lower and upper bounds of demand range; no other knowledge such as the demand mean, variance, or distribution type is necessary. Through simulations we show that our algorithm performs well compared to four other standard newsvendor problem solutions in a variety of situations, except when salvage values are high.

Keywords: Newsvendor Problem; Demand Forecasting; Demand Shocks, Machine Learning Algorithm, Inventory Management, Stochastic Demands.

Suggested Citation

O'neil, Shawn and Zhao, Xuying and Sun, Daewon and Chaudhary, Amitabh and Wei, Jerry, Coping with Demand Shocks: A Distribution-Free Algorithm for Solving Newsvendor Problems with Limited Demand Information (April 8, 2009). Available at SSRN: https://ssrn.com/abstract=1375227 or http://dx.doi.org/10.2139/ssrn.1375227

Shawn O'neil

affiliation not provided to SSRN ( email )

Xuying Zhao (Contact Author)

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Daewon Sun

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Amitabh Chaudhary

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Jerry Wei

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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