Managing Inventory: SP News Vendor Model

Question 1

Single-Period Inventory Model

Answer 1

systems that carry products with a limited saleable life; they cannot be resold in subsequent periods.

Question 2

Cost of Overage (Co)

Answer 2

The marginal cost (per unit) of holding one additional unit over what is required to meet demand Loss per unit Co = (c - v)

Question 3

Cost of Underage (Cu)

Answer 3

The marginal cost (per unit) of holding one fewer unit than what is required to meet demand Profit per unit Cu = p - c

Question 4

Critical Fractile Critical ratio Service level

Answer 4

Critical Ratio: the probability that demand is less than or equal to inventory (Q). The optimal inventory level for the single-period news vendor Review how to find Q (p.16-17, HBP) Cu / (Cu + Co) = critical fractile (profit per unit) / (profit per unit + loss per unit) = critical ratio Service level: the probability a firm can fill customers’ requests

Question 5

Profit per unit sold

Answer 5

p - c Cu

Question 6

Loss per unit

Answer 6

c - v Co

Question 7

Salvage (v)

Answer 7

Profit via units not sold

Question 8

Stock-out rate

Answer 8

1 - critical ratio

Q + SS

the cost of not being able to fill demand; if Q* > Q, then (1 - CR)