What is the Value of Censored Data? An Exact Analysis for the Data-driven Newsvendor

TL;DR

This paper provides an exact analysis of the offline data-driven newsvendor problem with censored demand data, revealing how demand censoring impacts policy performance and how targeted exploration can mitigate these effects.

Contribution

It introduces a method to compute the exact worst-case regret for inventory policies under demand censoring, and characterizes the impact of different data collection approaches on policy performance.

Findings

Demand censoring limits what can be learned from sales data.

Targeted exploration at high inventory levels improves worst-case guarantees.

Policies treating sales as demand can perform poorly under heavy censoring.

Abstract

We study the offline data-driven newsvendor problem with censored demand data. In contrast to prior works where demand is fully observed, we consider the setting where demand is censored at the inventory level and only sales are observed; sales match demand when there is sufficient inventory, and equal the available inventory otherwise. We provide a general procedure to compute the exact worst-case regret of classical data-driven inventory policies, evaluated over all demand distributions. Our main technical result shows that this infinite-dimensional, non-convex optimization problem can be reduced to a finite-dimensional one, enabling an exact characterization of the performance of policies for any sample size and censoring levels. We leverage this reduction to derive sharp insights on the achievable performance of standard inventory policies under demand censoring. In particular, our analysis of the Kaplan-Meier policy shows that while demand censoring fundamentally limits what can be learned from passive sales data, just a small amount of targeted exploration at high inventory levels can substantially improve worst-case guarantees, enabling near-optimal performance even under heavy censoring. In contrast, when the point-of-sale system does not record stockout events and only reports realized sales, a natural and commonly used approach is to treat sales as demand. Our results show that policies based on this sales-as-demand heuristic can suffer severe performance degradation as censored data accumulates, highlighting how the quality of point-of-sale information critically shapes what can, and cannot, be learned offline.