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Speculative production and anticipative reservation of reactive capacity by a multi-product newsvendor

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  • Reimann, Marc

Abstract

In this paper the optimal sourcing decisions of a multi-product newsvendor prior to the selling season of the products are studied. To satisfy the uncertain demands, the newsvendor can either utilize speculative production, or anticipatively reserve capacity. During the selling season when demand has become known, the newsvendor can utilize its reserved capacity and reactively satisfy demand uncovered by its speculative production. For the case where capacity for speculative production may be limited, but potential reservation of reactive capacity is unlimited two capacity reservation settings are analyzed and compared. In the first one capacity for each product has to be reserved separately, while in the second setting one joint capacity reservation for all products is permitted which can then be allocated to the different products optimally during the selling season. For the case of separate individual reservations the optimal strategies are analytically derived and structural insights concerning their existence are presented. As the model allowing for joint reservation can not be tackled analytically in general an approximation based on an LP formulation is used. Through a numerical example insights on the value of the increased flexibility induced by joint reservation, the cost-premium acceptable for joint reservation and the relative levels of capacity reservation in the two settings are given.

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  • Reimann, Marc, 2011. "Speculative production and anticipative reservation of reactive capacity by a multi-product newsvendor," European Journal of Operational Research, Elsevier, vol. 211(1), pages 35-46, May.
    • Handle: RePEc:eee:ejores:v:211:y:2011:i:1:p:35-46
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    Cited by:

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    3. Chenxing Li & Xianliang Shi, 2024. "Supply Strategies and Business Model Options for Online Retailers of Agricultural Products," Sustainability, MDPI, vol. 16(20), pages 1-21, October.
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    6. Mohammad A.M. Abdel-Aal & Mujahid N. Syed & Shokri Z. Selim, 2017. "Multi-product selective newsvendor problem with service level constraints and market selection flexibility," International Journal of Production Research, Taylor & Francis Journals, vol. 55(1), pages 96-117, January.
    7. Hu, Xiangling & Motwani, Jaideep G., 2014. "Minimizing downside risks for global sourcing under price-sensitive stochastic demand, exchange rate uncertainties, and supplier capacity constraints," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 398-409.
    8. Pinçe, Çerağ & Yücesan, Enver & Bhaskara, Prithveesha Govinda, 2021. "Accurate response in agricultural supply chains," Omega, Elsevier, vol. 100(C).
    9. Sillanpää, Ville & Liesiö, Juuso & Käki, Anssi, 2021. "Procurement decisions over multiple periods under piecewise-linear shortage costs and fixed capacity commitments," Omega, Elsevier, vol. 100(C).
    10. Mitra, Subrata, 2018. "Newsvendor problem with clearance pricing," European Journal of Operational Research, Elsevier, vol. 268(1), pages 193-202.

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