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Lower Bound for Cost Deviation in the Newsboy Model

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  • Khanra, Avijit
  • Bandyopadhyay, Tathagata

Abstract

Quality of decisions in inventory management problems depends on accuracy of parameter estimates used for decision making. In many situations, error in decision making is unavoidable. In such cases, understanding sensitivity of objective function to sub-optimal decisions is necessary for better implementation of the model. We study sensitivity of expected demand-supply mismatch cost to sub-optimal ordering decisions in the newsboy model. We demonstrate through establishing a lower bound for cost deviation that the newsboy model is sensitive to error in ordering decisions. We generalize our conclusions to the discrete case too.

Suggested Citation

  • Khanra, Avijit & Bandyopadhyay, Tathagata, 2013. "Lower Bound for Cost Deviation in the Newsboy Model," IIMA Working Papers WP2013-11-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:12137
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    References listed on IDEAS

    as
    1. Khouja, Moutaz, 1999. "The single-period (news-vendor) problem: literature review and suggestions for future research," Omega, Elsevier, vol. 27(5), pages 537-553, October.
    2. Khanra, Avijit & Soman, Chetan, 2013. "Sensitivity Analysis of the Newsboy Model," IIMA Working Papers WP2013-09-03, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Qin, Yan & Wang, Ruoxuan & Vakharia, Asoo J. & Chen, Yuwen & Seref, Michelle M.H., 2011. "The newsvendor problem: Review and directions for future research," European Journal of Operational Research, Elsevier, vol. 213(2), pages 361-374, September.
    4. Louis Eeckhoudt & Christian Gollier & Harris Schlesinger, 1995. "The Risk-Averse (and Prudent) Newsboy," Management Science, INFORMS, vol. 41(5), pages 786-794, May.
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