Session10handout - Supply Chain Modeling...

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Supply Chain Modeling Session 10: Newsvendor model in the  options framework Atalay Atasu
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Objective of Today’s Class Introduce the Newsvendor Model How much to order?     (i.e., What is the order quantity  that minimize losses?) What is the expected profit?
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The Newsvendor Model Why is the newsvendor problem interesting? Deciding under uncertainty is difficult, managers tend to be biased toward the mean. Betting on uncertain demand : you must take a bet (how much to order?) before some uncertain event (demand) occurs and then you learn that you either bet too much (demand was less than your order) or you bet too little (demand exceeded your order) Where is it applicable? apparel, perishable products, high tech products, and many other places where product life cycles are short
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The Newsvendor: Sweater Paradise How many sweaters should the retailer order? Consider a retailer ordering sweaters from its  supplier in China to be sold during Xmas  season The leadtime is sufficiently long that the retailer  can place order only once Just before placing the order, the retailer  estimates that the demand for sweaters will be  100 with probability 1/3, 200 with probability  1/3 and 300 with probability 1/3
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The Newsvendor: Sweater Paradise How many sweaters should the retailer order?
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The Newsvendor: Sweater Paradise c=30 Acquisition cost Need to know the economics (cost parameters)
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This note was uploaded on 01/25/2011 for the course MGT 4803 taught by Professor Staff during the Spring '08 term at Georgia Institute of Technology.

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Session10handout - Supply Chain Modeling...

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