311_session_18_Newsvendor

311_session_18_Newsv - Demand Uncertainty Newsvendor Model BUAD311 Session 18 1 Previous Lecture Inventory and Inventory management Why do we carry

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Demand Uncertainty Newsvendor Model BUAD311 Session 18
Background image of page 1

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

View Full DocumentRight Arrow Icon
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
3 Today What if demand is uncertain? Safety Stock (Newsvendor Model) Trade-offs 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
4 What we have learned? What is the optimal inventory quantity? (mean 4000, SD 1000, 90% in stock probability) 0 0.00005 0.0001 0.00015 0.0002 0.00025 0.0003 0.00035 0.0004 0.00045 0 1000 2000 3000 4000 5000 6000 7000 8000 Series1 5282   Probability of  excess inventory Probability of  shortage 0.90
Background image of page 4
5 Type-1 Service Level For normal distribution, it is always optimal to have: Mean + z*Standard deviation μ + z σ The service level determines the value of z z σ is the level of safety stock μ + z σ is the base stock How do you determine the service
Background image of page 5

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

View Full DocumentRight Arrow Icon
6 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 6
7 Uncertain Demand What is the objective? Minimize (maximize) the expected cost (profits). What are the decision variables? Purchase quantity, or inventory level.
Background image of page 7

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

View Full DocumentRight Arrow Icon
8 Single Period Problem We don’t know the demand but we know the distribution of the demand. There are costs associated with overage and underage. Let us determine the “right” purchase quantity when you have only one chance to purchase for the entire selling season. You want to determine how many toys to buy for the year-end season. You want to determine how many copies of LA Times to buy for the day.
Background image of page 8
9 Newsvendor Problem Costs Demand is Uniform between (1 and 5) Purchase cost is c = $15 Selling price is p = $25 Salvage value is v = $10 How many should you buy?
Background image of page 9

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

View Full DocumentRight Arrow Icon
10 Newsvendor Problem If you buy one unit, You will always earn $10, regardless of the demand realization.
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/15/2011 for the course BUAD 311 at USC.

Page1 / 30

311_session_18_Newsv - Demand Uncertainty Newsvendor Model BUAD311 Session 18 1 Previous Lecture Inventory and Inventory management Why do we carry

This preview shows document pages 1 - 11. Sign up to view the full document.

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