Maximizing Profit of Product Recall Based on the Reverse Newsvendor Model

The existing research topics on Newsboy model can be summarized as two streams: upstream is ordering and downstream is selling. However, the reverse flow of product recall is rarely concerned by the model. A reverse Newsvendor Model is proposed to optimize the product recall of enterprises for maximizing the revenues by considering recall factors (defective rate, compensation, psychology etc.). Taken triangular distribution as the base of distribution optimization, it is suggested by this model that the enterprise can just consider three variables: the compensation cost(b), probability of defective product (p) and product price (m), to calculate the recall price (x) as baseline for profit maximization and decide if the products need to recall or not. This model provides a more simplified and practical method for one-shot decision of product recalls.