Implementation of the Newsvendor Model with Clearance Pricing: How to (and How Not to) Estimate a Salvage Value

@article{Cachon2007ImplementationOT,
  title={Implementation of the Newsvendor Model with Clearance Pricing: How to (and How Not to) Estimate a Salvage Value},
  author={G{\'e}rard P. Cachon and A. G{\"u}rhan K{\"o}k},
  journal={Manufacturing & Service Operations Management},
  year={2007},
  volume={9},
  pages={276-290}
}
T newsvendor model is designed to decide how much of a product to order when the product is to be sold over a short selling season with stochastic demand and there are no additional opportunities to replenish inventory. There are many practical situations that reasonably conform to those assumptions, but the traditional newsvendor model also assumes a fixed salvage value: all inventory left over at the end of the season is sold off at a fixed per-unit price. The fixed salvage value assumption… CONTINUE READING