Sensitivity Analysis of the Newsboy Model

Avijit Khanra and Chetan Soman

No WP2013-09-03, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: Sensitivity analysis is an integral part of inventory optimization models due to uncertainty associated with estimates of model parameters. Though the newsboy problem is one of the most researched inventory problems, very little is known about its robustness. We study sensitivity of expected demand-supply mismatch cost to sub-optimal ordering decisions in the newsboy model. Conditions for symmetry (skewness) of cost deviation have been identi ed and magnitude of cost deviation is demonstrated for normal demand distribution. We found the newsboy model to be sensitive to sub-optimal ordering decisions, much more sensitive than the economic order quantity model.

Date: 2013-09-23
New Economics Papers: this item is included in nep-com, nep-lam, nep-ltv and nep-neu
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Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:12128

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