Single-Period Capacity and Demand Allocation Decision Making under Uncertainty

Abstract

The newsvendor model deals with a single-period capacity allocation problem under uncertainty. The real world examples include perishable products (e.g., fish, vegetable), holiday-related products (e.g., Easter, Christmas, Halloween), seasonal products (e.g., fashion), and promotional products. This section addresses three newsvendor models: traditional newsvendor, inverse newsvendor, and sequential newsvendor models. The main decision under the traditional newsvendor setting is capacity allocation (i.e., how much to order), whereas the main decision under the inverse newsvendor setting is demand allocation (i.e., how many customers to be served) under the fixed capacity. This section demonstrates how to compare profit maximization approach to customer-oriented approach under the traditional newsvendor. The inverse newsvendor applies to revenue management for the hospitality industry. The sequential newsvendor model determines the optimal sequence when the number of customers to be served (determined by the inverse newsvendor model) is given. Normal distribution is considered for analytical solution and numerical studies. In addition, a discrete distribution is considered for numerical studies.