Revision Chapter 5 on newsvendor.xls

Revision Chapter 5 on newsvendor.xls - Newsvendor Model For...

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Newsvendor Model For normal distribution A/F ratio = actual demand/ forecast demand (1) When A/F ratio = 1, it means an accurate forecast (2) When A/F ratio < 1, it means forecast was too high than actual demand (3) When A/F ratio > 1, it means forecast was too low than actual demand (4) Expected actual demand = Average A/F ratio x Forecast demand (5) Std dev of actual demand = Std dev of A/F ratio x Forecast demand Normal distribution has mean = 0 and std deviation = 1 Example: mean = 100, std dev = 25 and Q = 125 Hence, convert to normal distribution by z = Q-mean/ std dev = (125/100)/25 = 1 Both Co and Cu are defined for a single unit not total cost Co is overage cost which refers to the cost incurred when a unit has been ordered but was not sold as no demand for it (i.e. the per-unit cost of over-ordering). Co = Cost - Salvage value = c - v Cu is underage cost which refers to the cost incurred when a unit has NOT been ordered but can be sold as there is demand for it (i.e. the per-unit cost of under- ordering). Cu = Price - Cost = p - c

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Fill rate = expected sales/ order quantity own: given 2 figures, take the higher amount as Price and lower amount as cost. No value for salvage value if there is no 3rd figure given which is the lowest. (Ex Christmas ) Example, Mean and Std deviation is on Consultant not General Public. Given \$1200 per ticket for consultant and \$350 per ticket for general public. Hence, to find the optimal Q for consultant using the template, \$1200 is the Price while \$350 is the cost. Thus, Cu = \$350, while Cu = \$1200 - \$350 = 850

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Newsvendor model with normally distributed demand 1000 200 Optimal Order Quantity 1 2 0.6667 z 0.4307 Q 1,087 Ans a Order quantity to achieve a target in-stock probability Target in-stock 0.9000 z 1.28 Q 1,257 For C, part one, set the target in-stock to 90% to achieve the Q For C, part two play around with the Order Quantity under Performan Newsvendor model with normally distributed demand 1000 Inputs are in red , outputs in black Mean demand, : Standard deviation of demand, : Overage penalty, C o : Underage penalty, C u : Critical ratio: C u / ( C o + C u ) Inputs are in red , outputs in black Mean demand, :

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200 Optimal Order Quantity 1 2 0.6667 z 0.4307 Q 1,087 Order quantity to achieve a target in-stock probability Target in-stock 0.9000 Part one z 1.28 Q 1,257 Ans for part Standard deviation of demand, : Overage penalty, C o : Underage penalty, C u : Critical ratio: C u / ( C o + C u )
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