Robust Newsvendor Problem in Global Market: Stable Operation Strategy for a Two-Market Stochastic System

TL;DR

This paper develops a robust, closed-form operational strategy model for enterprises managing sales across two global markets with different seasons, risks, and exchange rate uncertainties, ensuring stable supply chain performance.

Contribution

It introduces a global robust newsvendor model with explicit solutions that account for market risks, demand relationships, and exchange rate impacts, enhancing operational stability.

Findings

Demand correlation and lack of demand info have minimal impact on strategy.

Reducing tariffs or logistics costs influences capacity planning.

Secondary market presence affects primary market capacity planning.

Abstract

The global markets provide enterprises with selling opportunities and challenges in stabilizing operational strategies. From the perspective of production management, it is important to improve the profitability of an enterprise by exploiting the different timing of the selling season in different markets to develop an operational strategy that is optimized and configured on a global scale. This paper examines the above issue with an insightful model of selling the product to two markets (a primary and a secondary market) with multiple risks of changes in the market environment and nonoverlapping selling seasons. We refer to this problem as the "global robust newsvendor" problem. We provide closed-form solutions of the optimal operation strategy for demand-independent and demand-related scenarios for the above two market stochastic systems. The closed-form solutions fully reflect the influence of the relationship between supply and demand on strategy selection. We find that the demand correlation and the lack of demand information will not substantially affect the operation strategy, and the enterprise's industrial chain and supply chain remain stable. However, the reduction of inter-market tariffs or logistics costs will cause changes, and the existence of the secondary market will lead to more capacity planning in the primary market. In addition, our model explicitly considers the impact of exchange rate uncertainty on operating strategies.