The EZNEWS.lng Model

Newsboy Problem

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A common inventory management problem occurs when the product in question has limited shelf life (e.g., newspapers, produce, computer hardware). There is a cost of over ordering, because the product will shortly become obsolete and worthless. There is also an opportunity cost of under ordering associated with forgone sales. Under such a situation, the question of how much product to order to maximize expected profit is classically referred to as the *newsboy problem*. In this example, we assume demand has a Poisson distribution. However, this is not mandatory. Refer to any operations research textbook for a derivation of the formulas involved.

Keywords:

Forecasting | Economic | Probabilities | Uncertainty | Inventory | Product Management | Reorder Point | Economic Order Quantity | Newsboy Problem |