What is the Value of Censored Data? An Exact Analysis for the Data-driven Newsvendor
This addresses inventory management challenges for businesses using point-of-sale data, offering insights into how data quality affects learning, but it is incremental as it builds on prior work on censored demand.
The paper tackles the offline data-driven newsvendor problem with censored demand data, where only sales are observed, and shows that targeted exploration at high inventory levels can enable near-optimal performance, while treating sales as demand leads to severe degradation as censored data accumulates.
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.