L16_Newsvendor - Lecture 16 The Newsvendor Model Slide 1 Le...

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Slide 1 Lecture 16 The Newsvendor Model
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Slide 2 Le a rning  O b je c tive s Understand the objective of inventory management and different  performance measures  Apply A/F ratio method to forecast demand Understand the differences between in-stock probability and fill rate  measures Understand the major trade-off involved in inventory management when  there is demand uncertainties Compute the newsvendor solution and the performance measures
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Slide 3 Managing Inventory with Uncertainty
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Slide 4 Uncertainties Result in  Understocking  (too few) results in missed deliveries, lost sales, dissatisfied  customers, and waste of resource (idle workers or machines). Overstocking   (too many) results in unsold items which may be carried  over time, marked down or salvaged. Excess inventory also ties up funds  that might be more productive elsewhere. Because of uncertainty, we cannot avoid understocking  and overstocking completely.  How do we evaluate customer satisfaction in this case?
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Slide 5 Stock Availability Target: In-Stock Probability Companies tends to commit to customers a certain service target to ensure  the stock availability . Two measures are often used: Type I service level (in-stock probability) : proportion of times (probability)  that demand is met. Pros: easy to measure, do NOT need lost sales data Cons: does not reflect how much demand has been satisfied (missed  just one or one million?) Example: 10-day record Days Sep-1 Sep-2 Sep-3 Sep-4 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-10 Total Daily Demand 7 13 8 11 9 10 5 28 14 16 121 Daily Inventory 10 10 10 10 10 10 10 10 10 10 100 Sales 7 10 8 10 9 10 5 10 10 10 89 Meet Demand? 1 0 1 0 1 1 1 0 0 0 5 5 10 In-stock Probability = =50%
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Slide 6 Stock Availability: Fill Rate Type II service level (fill rate) : proportion of demand that is met. Pros: tells to what extent the demand is satisfied Cons: real demand (lost sales) may not be observable or expensive to  track Same Example: 10-day record Fill rate = 89 121 =73.55% Days Sep-1 Sep-2 Sep-3 Sep-4 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-10 Total Daily Demand 7 13 8 11 9 10 5 28 14 16 121 Daily Inventory 10 10 10 10 10 10 10 10 10 10 100 Sales 7 10 8 10 9 10 5 10 10 10 89 Meet Demand? 1 0 1 0 1 1 1 0 0 0 5
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Other Measures Customer satisfaction measures   Stock-out probability = 1   in-stock probability Backorders/lost sales Expected (average) backorders/lost sales Internal control measures   cost measures Expected (average) leftover inventory Inventory turns =  Days of inventory on-hand : the expected number of days of sales that  can be supplied from existing inventory. Annual cost of goods sold
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This note was uploaded on 10/16/2011 for the course OM 335 taught by Professor Jonnalagedda during the Fall '08 term at University of Texas.

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L16_Newsvendor - Lecture 16 The Newsvendor Model Slide 1 Le...

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