The Distribution-Free Newsboy Problem with Resalable Returns

28 Pages Posted: 6 Nov 2003

See all articles by Julien Mostard

Julien Mostard

Erasmus Research Institute of Management (ERIM)

M. B. M. de Koster

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management

Ruud Teunter

Erasmus University Rotterdam (EUR) - Department of Econometrics; Erasmus Research Institute of Management (ERIM)

Date Written: 17 2003, 10

Abstract

We study the case of a catalogue/internet mail order retailer selling seasonal productsand receiving large numbers of commercial returns. Returned products arriving beforethe end of the selling season can be resold if there is sufficient demand. A single orderis placed before the season starts. Excess inventory at the end of the season is salvagedand all demands not met directly are lost. Since little historical information is available,it is impossible to determine the shape of the distribution of demand. Therefore, weanalyze the distribution-free newsboy problem with returns, in which only the mean andvariance of demand are assumed to be known. We derive a simple closed-form expressionfor the distribution-free order quantity, which we compare to the optimal order quantities whengross demand is assumed to be normal, lognormal or uniform. We find that the distribution-freeorder rule performs well in most realistic cases.

Keywords: inventory, distribution-free newsboy problem, product returns

JEL Classification: M, M11, R4, C61

Suggested Citation

Mostard, Julien and de Koster, M.B.M. René and Teunter, Ruud, The Distribution-Free Newsboy Problem with Resalable Returns (17 2003, 10). ERIM Report Series Reference No. ERS-2003-068-LIS. Available at SSRN: https://ssrn.com/abstract=463804

Julien Mostard (Contact Author)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

M.B.M. René De Koster

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management ( email )

RSM Erasmus University
PO Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1719 (Phone)
+31 10 408 9014 (Fax)

HOME PAGE: http://www.rsm.nl/rdekoster

Ruud Teunter

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 1 408 1523/9162 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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