Newsvendor model

Newspapers, as human-centered product planning/design tool, 1302, 1303 Newsvendor model, 1670 Newsvendor problem, 2626-2627 Newton s method, 2530-2531, 2550-2551 New York Stock Exchange (NYSE), 277 The New York Times, 266 NOT, see Nominal group technique NHANES, see National Health and Nutrition Examination Survey III NIEHS (National Institute for Environmental Health Sciences), 1168... 

Intuitively, the supply chain manager chooses a capacity level that sets the expected revenue associated with increasing capacity equal to the expected cost associated with increasing capacity. Thus, following the newsvendor model, the optimal capacity has to satisfy... 

There have been a few studies investigating the newsvendor model with the objective of attaining a preset target profit. Kabak and Schiff (1978) first study the problem with zero shortage cost. Lau (1980) and Sankarasubramanian and Kumaraswamy (1983) generalize the problem... 

In the reminder of this chapter, we first briefly review the standard newsvendor model with the satisficing objective. We then design Pareto-optimal WP, BB, and QF contracts for a supply chain where all agents adopt satisficing objectives. These Pareto-optimal contracts are then evaluated based on whether they can coordinate the supply chain or not. We then proceed to discuss possible extensions to the model by considering different objectives for different agents. Finally we summarize the results obtained in this chapter. 

In this section, we briefly review and extend the results for the newsvendor model under the satisficing objective. The purpose is to provide a basis for the subsequent analysis. 

Cachon, G. and G. Kok. 2002. Heuristic equilibrium in the newsvendor model with clearance pricing. Working Paper, University of Pennsylvania. 

J. D. Dana and N. C. Petruzzi. Note The newsvendor model with endogenous demand. Management Science, 47(11) 1488-1497, 2001. 

G. Raz and E. Porteus. A discrete service levels perspective to the newsvendor model with simultaneous pricing. Working Paper, Stanford... 

The newsvendor model, however, is also the basis for many periodic-review inventory models, which we discuss later in this chapter. Unlike the newsvendor model, though, these periodic-review models often involve the case of recurring demand with no cost to reorder, where the answer to "when" is either "at every review of the inventory level," or "when we re close to running out" at the time of review. 

Historically, an early version of the newsvendor model was studied by Arrow et al. (1951), but the model appears to have first been stated in the form typically recognized today by Whitin (1953). 

For a newsvendor setting, both fill rate and units short are functions of the order quantity Q, and since expected demand in the newsvendor model is p, it follows that the expected fill rate is... 

The ideas discussed earlier lead naturally to the idea of safety stock. One way to define safety stock is the amount of inventory held in excess of expected demand in order to protect against stockouts. In the case of the newsvendor model, where demand is a spike, the safety stock is simply given by Q - p. Note also that at Q = p, the newsvendor safety stock is zero and the expected in-stock probability is 50%. 

With these pieces in place, we can build a model of the annual cost of managing inventory. First, we consider the annual cost of ordering goods. In this constant-demand setting, our sole decision variable is, as it was in the newsvendor model, the order quantity Q. Since each order costs A /order, and an average of D/Q orders would be placed annually, the expected annual cost of ordering is OC = A D/Q. 

Some time-honored texts on production and inventory management—e.g., Hax and Candea (1984) and Silver et al. (1998)—include explicit stockout costs in the annual cost expression. Our approach, however, will be to consider a service constraint in finding the (Q, R) solution that minimizes expression (3.12). This is consistent with our earlier discussion of the newsvendor model. 

Rekik, Y., Sahin, E., Dallery, Y. (2010). A comprehensive analysis of the newsvendor model with unreliable supply. Working paper, Laboratoire Genie Industriel, Ecole Centrale Paris, Prance. 

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