Solving a Distribution-Free Multi-Period Newsvendor Problem With Advance Purchase Discount via an Online Ordering Solution

Abstract

In this paper, we study a distribution-free multi-period newsvendor problem with advance purchase discount (APD). In addition to the regular-order placed at the beginning of each period, a decision-maker (DM) can also commit to an advance-order from the upstream supplier and receive discounts. The goal of the DM is to maximize total profits, and in this problem, the DM only has access to past demand data. To solve this problem, we apply an online method based on the theory of prediction and learning with expert advice to propose an explicit online ordering solution by using the fixed-stock policy as expert advice. With the properties of the gain function, we derive a theoretical result that guarantees, for any given advance-order quantity, the newsvendor’s cumulative gains achieved by the proposed online ordering solution converge to those from the best expert advice in hindsight for a sufficient large horizon. In addition, we extend the problem to the discrete case and obtain the corresponding explicit strategy and performance guarantee. Finally, numerical studies illustrate the effectiveness of the proposed solution, and the newsvendor’s total profits are comparable to the best expert advice. Sensitivity analysis also shows the robustness of the proposed solution.