Newsboy

# Newsboy - Sport Obermeyer, a skiwear supplier, faces the...

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1 Sport Obermeyer, a skiwear supplier, faces the following challenges in production. 1. Demand for skiwear is highly uncertain; 2. Products have short shelf lives; 3. There is a very short sales season for fashion products; it typically begins in early September and ends before Christmas (urban stores) or mid-February (ski- area stores). 4. Long production lead times If too much is produced – If too little is produced -

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2 The Newsboy (newsvendor) Model Inventory management with no reordering Overage and underage costs Optimal level of availability (service level)
3 Newsboy Problem Mr. Choi operates a news-stand and sells SCMP. He orders copies of the newspaper from the publisher at a cost of \$4 per copy and sells at a retailing price of \$7. However, he is not certain of the actual demand when he places an order for next day’s newspaper. How many copies should he order?

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4 Decision Making Under Risk The problem has several features: There is a decision variable X (supply of newspaper) and a random variable Y (newspaper demand). The two variables jointly determines the outcome and we have to choose a value for X first before we observe the value of Y . There is a cost ( overage cost ) for every unit by which X exceeds Y (one unsold newspaper). There is a cost ( underage cost ) of every unit by which Y exceeds X (one newspaper short). No re-ordering one period demand
5 Overage and Underage Costs: Impact of One Additional Unit of Supply If X is stock level and Y is demand, then Overage cost c o is the answer to the following question: In case Y X, how much WORSE off would I be if the stock level were X + 1 ? Underage cost

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## Newsboy - Sport Obermeyer, a skiwear supplier, faces the...

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