This posting contains an example problem on application of the newsvendor inventory problem.
Problem # 1.
ABC Appliances is an electronics superstore in California. It sells consumer electronics items as well as appliances. ABC is considering carrying a newly introduced plasma HDTV for Charismas holiday sales. Each HDTV can be sold at $2500. ABC can purchase each unit for $1,800. Any unsold TV s can be salvaged for $1,700. The retailer estimates that the demand for this new HDTV will be between 100 and 200 units with probability weights as given in Table1. ABC needs to determine the number of HDTVs to be purchased for this season's sales. Find the expected demand for HDTVs from the data in Table 1.
Use this table to determine the mean and standard deviation of the demand and find the optimal order quantity if the ABC Appliances used newsvendor inventory system.
The solution to the first problem explains the calculation of ...
A simple newsvendor model where demand is assumed to be following normal distribution is provided.