Note: Optimal ordering decisions with uncertain cost and demand forecast updating

We determine the optimal ordering policy for a retailer who has two instant s to order a seasonal product from a manufacturer prior to a single selling season. While the demand is uncertain, the retailer can improve the foreca st by utilizing the market signals observed between the first and second in stants. However, because of the nature of the manufacturing environment, th e unit cost at the second instant is uncertain and could be higher (or lowe r) than the unit cost at the first instant. To determine the profit-maximiz ing ordering strategies at both instants, the retailer has to evaluate the trade-off between a more accurate forecast and a potentially higher unit co st at the second instant. We present a nested newsvendor model for determin ing the optimal order quantity at each instant and characterize the conditi ons under which it is optimal for the retailer to delay its order until the second instant.