MGMT 3375 Homework 3: Newsvendor Single order quantity (Newsvendor problem) Only a single order is placed o no possibility to place additional orders if demand exceeds expectations no possibility to store items in inventory (for later sale) if demand is lower than expected Trade-off between ordering too little and too much: o Ordering too little: stockout costs (e.g. lost sales) o Ordering too much: cost of overstocking (e.g. cost of scrapping) Optimal order quantity: Q-x+2(or) o Q'optimal order quantity o average demand oz safety factor oor standard deviation of demand Average demand and the standard deviation of demand are given Challenge: define z such that the sum of the expected cost of overstocking (C.) and the expected stockout costs (C) is minimized op is the optimal in-stock probability op-p(x