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Submitted By rezbahal
Words 4526
Pages 19
Newsvendor Model
Chapter 11

1 Learning Goals

Determine the optimal level of product availability
– Demand forecasting
– Profit maximization

Service measures such as a fill rate



Determining optimal levels (purchase orders)
– Single order (purchase) in a season
– Short lifecycle items

1 month: Printed Calendars, Rediform
6 months: Seasonal Camera, Panasonic
18 months, Cell phone, Nokia
Motivating Newspaper Article for toy manufacturer Mattel

Mattel [who introduced Barbie in 1959 and run a stock out for several years then on] was hurt last year by inventory cutbacks at Toys “R” Us, and officials are also eager to avoid a repeat of the 1998 Thanksgiving weekend. Mattel had expected to ship a lot of merchandise after the weekend, but retailers, wary of excess inventory, stopped ordering from Mattel. That led the company to report a $500 million sales shortfall in the last weeks of the year ... For the crucial holiday selling season this year, Mattel said it will require retailers to place their full orders before Thanksgiving. And, for the first time, the company will no longer take reorders in December, Ms. Barad said. This will enable Mattel to tailor production more closely to demand and avoid building inventory for orders that don't come.
- Wall Street Journal, Feb. 18, 1999

For tax (in accounting), option pricing (in finance) and revenue management applications see newsvendorEx.pdf, basestcokEx.pdf and revenueEx.pdf.


O’Neill’s Hammer 3/2 wetsuit


Hammer 3/2 timeline and economics
Generate forecast of demand and submit an order to TEC, supplier

Spring selling season

Nov Dec Jan


Mar Apr May

Receive order from TEC at the end of the

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