L17_Newsvendor_r

# L17_Newsvendor_r - Lecture 17 Application of Newsvendor...

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Slide 1 Lecture 17 Application of Newsvendor Model

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Slide 2 Ana lyze  the  Ne ws ve ndo r Collecting data Demand information   Pr(D)   probability that demand equals D F(D)   cumulative probability, probability that demand is at most D Cost data Cu =  Selling price per unit   purchasing cost per unit = margin Co =  purchasing cost per unit   salvage value per unit Compute the newsboy solution   Q o u u C C C Q D Q F + = = ) Pr( ) (
Slide 3 Ana lyze  the  Ne ws ve ndo r c o nt Compute the following quantities μ = Expected demand = ∑ Pr(D) X D Expected sales = ∑ Pr(D) X S(D) Expected lost sales = ∑ Pr(D) X LS(D)  =  μ  - Expected sales       Expected leftover inventory =   Q     expected sales The service level (Expected) Fill rate = Expected sales  Expected demand  In-stock probability = Cu Co + Cu

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Slide 4 Ana lyze  the  Ne ws ve ndo r c o nt Compute profit/cost measures when ordering  Q Mismatch cost Expected overage cost = Co  X  Expected leftover inventory  Expected underage cost = Cu X  Expected lost sales Mismatch cost = Expected overage cost + Expected underage cost Profit Expected profit  =  Cu  X  Expected sales - Co  X  Expected leftover inventory Maximum profit =  Cu  X   μ      = Expected profit + Mismatch cost Hence, maximizing profit is equivalent to minimizing the mismatch cost!
Slide 5 The newsboy solution  Q , Increases when   Cu  increases Selling price increases Purchasing cost decreases Decreases when  Co  increases Purchasing cost increases Salvage value decreases Re c a ll: Ne ws b o y Mo de l o u o o u u C C C C C C Q D Q F + - = + = = 1 ) Pr( ) ( Probability of Demand Order size Distribution function of the demand

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Slide 6 Le a rning  O b je c tive s Understand the modeling technique of newsvendor problem Solve newsvendor problem with continuous demand distribution
Slide 7 An Application

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Slide 8 Wedding Plan Sarah and her fiance signed a contract with a caterer.  Pay \$60 per guest they committed to. Pay \$85 for each extra guest. Uncertainties
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L17_Newsvendor_r - Lecture 17 Application of Newsvendor...

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