A Data-Driven Newsvendor Problem: From Data to Decision
27 Pages Posted: 26 Dec 2017
Date Written: December 8, 2017
Retailers that order perishable items are required to make ordering decisions for hundreds of products on a daily basis. This task is non-trivial because the risk of ordering too much or too little is associated with overstocking costs and unsatisfied customers. Traditionally, this problem is solved in a two-step procedure. First, the parameters of a given demand distribution are estimated, and second, an optimization problem based on this distribution is solved to obtain the order quantity. However, in reality, the true demand distribution is almost never known to the decision maker. Therefore, we present a novel solution method based on Artificial Neural Networks and Quantile Regression that does not require the assumption of a specifc demand distribution. We provide an empirical evaluation of our method with point-of-sales data for a large German bakery chain. We find that our method outperforms well-established standard approaches in most cases.
Keywords: inventory, newsvendor, artifcial neural networks, quantile regression
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