Universal Journal of Industrial and Business Management(CEASE PUBLICATION) Vol. 1(3), pp. 90 - 97
DOI: 10.13189/ujibm.2013.010303
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A Two-Period Newsvendor Setting with Product Extension and Shifting Demand Concerns

Kuo-Hsien Wang¹, Che-Tsung Tung^2,*, Yuan-Chih Huang^3
1 Dept. of Business Administration, Takming University of Science and Technology, Taiwan
² Dept. of International Trade, Takming University of Science and Technology, Taiwan
³ Dept. of Business Administration, Takming University of Science and Technology, Taiwan

ABSTRACT

The objective of this study is to optimize an overall expected profit in a two-period newsvendor setting by jointly determining these two items’ order sizes and selling prices. The item in the second period is a product extension of the item in the first period. An inadequate inventory is intentionally placed in the first period in order to stimulate more sales in the second period. The first item’s unsatisfied demand is assumed to be transferred to the second selling period with a certain shifting demand rate. The two items’ stochastic demand is assumed to be in a linear-additive form consisting of a deterministic demand and an error demand that is exponentially distributed. Including the classical newsvendor model as a special case, we first propose a pertinent model that overshadows the classical newsvendor setting in terms of profit performances, and surprisingly find that the first item’s error demand should be completely sacrificed when facing a high shifting demand rate. Afterwards, we modify the model to identify that our inadequate stock strategy is indeed practicable, and then extend the model to predetermine the two items’ selling prices that ensure the existence of maximum of the expected profit. Possible triggered effects, such as an increasing primary demand, an increasing error demand and a cheaper purchasing cost in the second period, are also illustrated by examples.

KEYWORDS
Newsvendor, Product extension, Shifting demand, Newsboy, EOQ

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Kuo-Hsien Wang , Che-Tsung Tung , Yuan-Chih Huang , "A Two-Period Newsvendor Setting with Product Extension and Shifting Demand Concerns," Universal Journal of Industrial and Business Management(CEASE PUBLICATION), Vol. 1, No. 3, pp. 90 - 97, 2013. DOI: 10.13189/ujibm.2013.010303.

(b). APA Format:
Kuo-Hsien Wang , Che-Tsung Tung , Yuan-Chih Huang (2013). A Two-Period Newsvendor Setting with Product Extension and Shifting Demand Concerns. Universal Journal of Industrial and Business Management(CEASE PUBLICATION), 1(3), 90 - 97. DOI: 10.13189/ujibm.2013.010303.