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Service Level Constrained Distribution-Free Newsvendor Problem with Balking Penalty

Author

Listed:
  • Yongho Lee

    (School of Industrial and Management Engineering, Korea University, Seoul 02841, Korea
    Smart Manufacturing Research Center, Korea Electronics Technology Institute, Seongnam-si 13509, Korea)

  • Taesu Cheong

    (School of Industrial and Management Engineering, Korea University, Seoul 02841, Korea)

Abstract

This study extends the newsvendor model to address customer balking and its penalty under service-level constraints. The model designed in this study determines the optimal order quantity to derive the maximum expected profit when a customer is reluctant to buy a product and the available inventory falls below a certain threshold. In addition, the service level is introduced into the procedure to determine the optimal order quantity, thus facilitating the process. Under these circumstances, we also propose a corresponding distribution-free model to determine tight lower bounds on expected profits under the worst-case scenario. To quantitatively evaluate our model’s performance, we compared profits based on the presence or absence of demand distribution, and demonstrated the effect of varying balking penalty costs and probabilities. Introducing a practical service level that can be used as a trade-off tool to help determine reasonable estimates and profitable decisions is beneficial when determining order quantity by comparing goodwill and holding costs.

Suggested Citation

  • Yongho Lee & Taesu Cheong, 2022. "Service Level Constrained Distribution-Free Newsvendor Problem with Balking Penalty," Mathematics, MDPI, vol. 10(14), pages 1-14, July.
  • Handle: RePEc:gam:jmathe:v:10:y:2022:i:14:p:2487-:d:864702
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    References listed on IDEAS

    as
    1. Liao, Yi & Banerjee, Avijit & Yan, Changyuan, 2011. "A distribution-free newsvendor model with balking and lost sales penalty," International Journal of Production Economics, Elsevier, vol. 133(1), pages 224-227, September.
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    4. Brojeswar Pal & Shib Sankar Sana & Kripasindhu Chaudhuri, 2015. "A distribution-free newsvendor problem with nonlinear holding cost," International Journal of Systems Science, Taylor & Francis Journals, vol. 46(7), pages 1269-1277, May.
    5. Lee, Se Won & Jung, Uk, 2014. "Customer balking behavior in the newsvendor model: Its impact on performance measures and decision under uncertain balking parameters," International Journal of Production Economics, Elsevier, vol. 154(C), pages 274-283.
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