The multi-item newsvendor problem with a budget constraint and fixed ordering costs

Abstract

This paper deals with a multi-item newsvendor problem subject to a budget constraint on the total value of the replenishment quantities. Fixed costs for non-zero replenishments have been explicitly considered. Dynamic programming procedures are presented for two situations: (i) where the end item demand distributions are assumed known (illustrated for the case of normally distributed demand) and (ii) a distribution free approach where only the first two moments of the distributions are assumed known. In addition, simple and efficient heuristic algorithms have been developed. Computational experiments show that the performance of the heuristics are excellent based on a set of test problems.

Keywords:

• inventory
• newsvendor problem
• budget
• distribution free approach