Speculative production and anticipative reservation of reactive capacity by a multi-product newsvendor

In this paper we study the optimal sourcing decisions of a multi-product newsvendor prior to the selling season of the products. To satisfy the uncertain demands, the newsvendor can either utilize speculative production, or anticipatively reserve capacity. During the selling season when demand has become known, the newsvendor can utilize its reserved capacity and reactively satisfy demand uncovered by its speculative production. For the case where capacity for speculative production may be limited, but potential reservation of reactive capacity is unlimited we analyze and compare two capacity reservation settings, namely the case where capacity for each product has to be reserved separately and the case where one joint capacity reservation for all products is permitted which can then be allocated to the di erent products optimally during the selling season. For the case of separate individual reservations we analytically derive the optimal strategies and present structural insights concerning their existence. As the model allowing for joint reservation can not be tackled analytically in general we present an approximation based on an LP formulation. Using a numerical example we present insights on the value of the increased exibility induced by joint reservation, the cost-premium acceptable for joint reservation and the relative levels of capacity reservation in the two settings.