A Constructive Methodology to Solving the Capacitated Newsvendor Problem: an Approximate Approach

Abstract

The applications of the capacitated newsvendor problem are numerous. They range from inventory control, supply chain management, and airlines seat reservation to stock market applications. While several solution methodologies exist for this problem, most of them require advanced mathematical programming techniques or specifically developed iterative models. To complement these solution approaches and facilitate wider dissemination of this model particularly to upper-undergraduate and first-year graduate students as well as practitioners in related fields, in this paper, we develop an approximate solution methodology that is based on constructive approaches. These approaches already exist in standard textbooks of operations research, management science, and other similar disciplines. The two models utilized in the development are the classical newsvendor and the network flow model. Numerical comparisons are drawn between existing solution methodologies and the developed ones. Also, an example is presented to show the steps of the developed methodology.