From the course: Excel Supply Chain Analysis: Solving Inventory Problems

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Describe the newsvendor problem and approaches

Describe the newsvendor problem and approaches - Microsoft Excel Tutorial

From the course: Excel Supply Chain Analysis: Solving Inventory Problems

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Describe the newsvendor problem and approaches

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- [Instructor] So far in this course we've assumed that any items you keep in inventory will remain sellable. However, in this chapter, we're going to look at what's called the newsvendor problem. And newsvendor comes from the idea that newspapers are only good for one day, and you, as the seller, have to determine how many to make or how many to buy from your supplier. If you make too many, you lose money from unsold inventory. However, if you make too few, you lose money from missed sales. So the idea is to balance those two risks. There are two basic approaches to analyzing a newsvendor problem. The first is to create a data table, and there you explicitly calculate profit from each demand and order quantity scenario. So you might have a demand of 200, but if you made 2,000 of your items, such as t-shirts for a conference, then you will have a lot of unsold inventory that you're not able to sell later. The data table…

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