Newsvendor models for innovative products with one-shot decision theory

Peijun Guo, Xiuyan Ma

  • 5 Citations

Abstract

In this paper, newsvendor problems for innovative products are analyzed. Because the product is new, no relevant historical data is available for statistical demand analysis. Instead of using the probability distribution, the possibility distribution is utilized to characterize the uncertainty of the demand. We consider products whose life cycles are expected to be smaller than the procurement lead times. Determining optimal order quantities of such products is a typical one-shot decision problem for a retailer. Therefore, newsvendor models for innovative products are proposed based on the one-shot decision theory (OSDT). The main contributions of this research are as follows: the general solutions of active, passive, apprehensive and daring focus points and optimal alternatives are proposed and the existence theorem is established in the one-shot decision theory; a simple and effective approach for identifying the possibility distribution is developed; newsvendor models with four types of focus points are built; managerial insights into the behaviors of different types of retailers are gained by the theoretical analysis; the proposed models are scenario-based decision models which provide a fundamental alternative to analyze newsvendor problems for innovative products. © 2014 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)523-536
Number of pages14
JournalEuropean Journal of Operational Research
Volume239
Issue number2
DOIs
StatePublished - 2014 Dec 1

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Decision theory
Probability distributions
Life cycle

Keywords

  • Decision making
  • Innovative product
  • Newsvendor model
  • One-shot decision theory
  • Scenario-based decision model

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Modelling and Simulation
  • Information Systems and Management

Cite this

Newsvendor models for innovative products with one-shot decision theory. / Guo, Peijun; Ma, Xiuyan.

In: European Journal of Operational Research, Vol. 239, No. 2, 01.12.2014, p. 523-536.

Research output: Contribution to journalArticle

Guo, Peijun; Ma, Xiuyan / Newsvendor models for innovative products with one-shot decision theory.

In: European Journal of Operational Research, Vol. 239, No. 2, 01.12.2014, p. 523-536.

Research output: Contribution to journalArticle

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AB - In this paper, newsvendor problems for innovative products are analyzed. Because the product is new, no relevant historical data is available for statistical demand analysis. Instead of using the probability distribution, the possibility distribution is utilized to characterize the uncertainty of the demand. We consider products whose life cycles are expected to be smaller than the procurement lead times. Determining optimal order quantities of such products is a typical one-shot decision problem for a retailer. Therefore, newsvendor models for innovative products are proposed based on the one-shot decision theory (OSDT). The main contributions of this research are as follows: the general solutions of active, passive, apprehensive and daring focus points and optimal alternatives are proposed and the existence theorem is established in the one-shot decision theory; a simple and effective approach for identifying the possibility distribution is developed; newsvendor models with four types of focus points are built; managerial insights into the behaviors of different types of retailers are gained by the theoretical analysis; the proposed models are scenario-based decision models which provide a fundamental alternative to analyze newsvendor problems for innovative products. © 2014 Elsevier B.V. All rights reserved.

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KW - Scenario-based decision model

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