Newsvendor - MANAGING INVENTORY IN THE FACE OF UNCERTAINTY...

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MANAGING INVENTORY IN THE FACE OF UNCERTAINTY The Newsvendor Problem MGT3501
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You are the GaTech Barnes & Noble Merchandise Buyer #BB12 - Final Four tee 100% cotton -shirt with Final Four logo $21.98 . It’s Sunday, March 28, 2004. The Jackets just made it to the Final Four. Before heading out to celebrate, you need to call your T-shirt supplier and order Final Four merchandise. How many do you order?
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The Newsvendor Framework One chance to decide on the stocking quantity for the product you’re selling Demand for the product is uncertain Known marginal profit for each unit sold and known marginal loss for the ones that are bought and not sold Goal: Maximize expected profit
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Examples where the Newsvendor framework is appropriate Perishable goods Meals in a cafeteria Dairy foods Short selling season Christmas trees, toys Flowers on Valentine’s day Fashion clothes, seasonal clothes Newspapers
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The Newsvendor Problem Newsvendor selling the AJC Sells the papers for $1.00 Buys them for 70 cents Leftover papers sold at discount: 20 cents each. He will definitely have at least 35 customers, but no more than 40: 35 customers with probability 0.10 36 customers with probability 0.15 37 customers with probability 0.25 38 customers with probability 0.25 39 customers with probability 0.15 40 customers with probability 0.1 How Many Papers Should He Buy To Maximize His Expected Profit?
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