Analysing Newsvendor Problems: A Cash-flow Net Present Value Approach

Abstract

Cash-flow based Net Present Value (NPV) modelling in supply chain and inventory
management has not received much attention in the context of stochastic demand.
It offers, however, an accurate approach to study the interactions between logistics
decisions, demand pattern characteristics, and payment contract details with suppliers, and their combined effect on expected future profits. In this thesis, we examine the usefulness of this technique in the context of two-echelon supply chains in which the downstream firm (retailer) faces a newsvendor problem for each product to be sold during a selling season. In a first part, we examine the value proposition of Net D clauses. Popular opinion is that these contracts, often used in retail supply chains, hurt suppliers. Using cash-flow NPV modelling we can get insight into why this would be, and when this popular opinion is incorrect. In the second part, we show how cashflow NPV modelling helps to design so-called mixing contracts to establish perfect coordination in such supply chains. A mixing contract includes elements of discount, buyback, and revenue sharing contracts, and the increased flexibility means that the firms can also aim to achieve good performance on other criteria besides profit. In the case of information asymmetry, we show that with a dishonest firm, both parties can still benefit. In the final part, we develop an NPV model that captures non-stationary demand over a selling season and solve it with backward induction. Firms could benefit from this approach to help exploit their knowledge about product sales variations during the normal selling period, and/or about the conditions for selling during a discount/sales period.

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Identifiers

ORCID for Patrick Beullens: orcid.org/0000-0001-6156-3550

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