311_session_24_newsvendor

311_session_24_newsvendor - Demand Uncertainty Newsvendor...

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1 Demand Uncertainty Newsvendor Model BUAD311 Session 23
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Today Hand in HW3. HW4 is posted, and is due Thursday 4/14. Root Beer Game Littlefield Game Inventory management when there is uncertain demand (newsboy model). 2
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Root Beer Game (2pm) We will play the root beer game 1 week from today (Thursday, 4/14). You must have purchased an online code by Sunday 4/10. (I will be doing some preparation work before class Tuesday.) Online registration link ($7.50 for the license): http://forio.com/signup/F1656740 Instructions also posted to BB. 3
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Root Beer Game (4pm) We will play the root beer game 1 week from today (Thursday, 4/14). You must have purchased an online code by Sunday 4/10. (I will be doing some preparation work before class Tuesday.) Online registration link ($7.50 for the license): http://forio.com/signup/F1656400 Instructions also posted to BB. 4
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Littlefield Game 2 Instructions posted to BB Observation period starts Sunday, 4/10, at 7:00 pm. The simulator begins running Sunday, 4/17, at 7:00 pm. If your team was not posted correctly, please see me after class 5
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Littlefield Game 2 The same set up as game 1 EXCEPT The long-run average customer demand will not change over the product’s lifetime (though it continues to be random) You must set a Reorder Point and Order Quantity. Test kits are purchased as soon as The inventory of test kits is less than or equal to the reorder point. There are no orders for kits currently outstanding. The lab has sufficient cash to purchase the reorder quantity. A reliable supplier delivers the order quantity of kits 6
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Littlefield Game 2 Customers are will pay for fast lead times. You may choose between three pricing contracts: Price = $750, quoted lead time = 7 days, max. lead time = 14 days. (This is the contract the lab starts with.) Price = $1000, quoted lead time = 1 day, max. lead time = 3 days Price = $1250, quoted lead time = 0.5 days, max. lead time = 1 day As before, if a customer’s order’s lead time exceeds the quoted lead time, then the revenue for that order decreases linearly, from the above price to $0 for the max. lead time. A contract is assigned to a customer order as soos as it arrives at the lab, and cannot be changed 7
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8 Today What if demand is uncertain? Newsvendor Model Trade-offs Objective function Solving – decision tree Solving – marginal analysis Examples Will hand back exams at the end of class.
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9 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?
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10 The Magnitude of Shortages (Out of Stock)
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11 What are the Reasons?
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12 Consumer Reaction
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13 What can be done to minimize shortages?
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