Newsvendor solutions with general random yield distributions

Author： Grasman Scott E. Sari Zaki Sari Tewfik

E-ISSN： 1290-3868|41|4|455-464

ISSN： 0399-0559

Source： RAIRO - Operations Research, Vol.41, Iss.4, 2007-10, pp. : 455-464

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Abstract

Most systems are characterized by uncertainties that cause throughput to be highly variable, for example, many modern production processes and services are substantially affected by random yields. When yield is random, not only is the usable quantity uncertain, but the random yield reduces usable capacity and throughput in the system. For these reasons, strategies are needed that incorporate random yield. This paper presents the analysis of the newsvendor model with a general random yield distribution, including the derivation of the optimal order quantity. Results are shown to converge to the basic newsvendor model for the case of perfect yield, and are further demonstrated using the case of general multiplicative random yield. Results have significant impact on both manufacturing and service sectors since the newsvendor model applies to many real-world situations.