311_Session23_Newsvendor

311_Session23_Newsvendor - OperationsManagement...

Info iconThis preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
Operations Management Session 23:  Newsvendor Model
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Session 23 Operations Management 2 Previous Lecture Inventory and Inventory management Why do we carry inventory? What is the cost? Cycle Inventory EOQ Model and Formula Tradeoff: Economies of Scale vs. Holding Cost
Background image of page 2
Session 23 Operations Management 3 Today What happens when demand is uncertain? Newsvendor Model Trade-offs Objective function Solving – decision tree Solving – marginal analysis Examples
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Session 23 Operations Management 4 Uncertain Demand What are the relevant trade-offs? Overstock Demand is lower than the available inventory Inventory holding cost Shortages Demand is higher than the available inventory Why do we have shortages? What is the effect of shortages? 
Background image of page 4
Session 23 Operations Management 5 The Magnitude of Shortages   (Out of Stock)  
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Session 23 Operations Management 6 What are the Reasons?   
Background image of page 6
Session 23 Operations Management 7 Consumer Reaction   
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Session 23 Operations Management 8 What can be done to minimize  shortages? Better forecast Produce to order and not to stock Is it always feasible? Have large inventory levels Order the right quantity What do we mean by the right quantity?
Background image of page 8
Session 23 Operations Management 9 Uncertain Demand What is the objective? Minimize (maximize) the  expected  cost (profits). What are the decision variables? The optimal purchasing quantity, or the optimal inventory  level. 
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Session 23 Operations Management 10 What are the Relevant Costs? S:  Set-up cost (per order) h:  Holding cost (per unit per period) c:  Purchasing cost (per unit) v:  Salvage value (per unit) The value of salvage, at the end of the horizon, for excess inventory r:  Revenue per unit g: Goodwill cost
Background image of page 10
Session 23 Operations Management 11 Example 1:  Beer Distributor A retailer knows that the demand for beer during  the Super Bowl can be either high (8 units) or low  (4 units). How many units should the retailer stock? Do we need more information to answer this question?
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Session 23 Operations Management 12 Example 1:  Beer Distributor The answer depends on the probability of each event  happening and on the costs.  Suppose: Probability of demand being equal to  4 is 0.4 .   Probability of demand being equal to  8 is 0.6. Salvage value is  $1 per unit Purchasing cost is  $3 per unit Revenue is  $12 per unit Goodwill cost is $0 per unit We will maximize expected profit.
Background image of page 12
Session 23 Operations Management 13 Example 1:  Beer Distributor Profit = Sales Revenue + Salvage Revenue –  Purchase Cost Purchase 4 units:
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 52

311_Session23_Newsvendor - OperationsManagement...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online