ISEN 315 Spring 2011 Dr. Gary Gaukler

Service Level of the Newsvendor What is service level? A naïve proxy: probability that demand will be less than what we stock =

Service Level of the Newsvendor What is wrong with this proxy definition of service level?

Service Level of the Newsvendor Instead, use expected fill rate as service level measure:

Demand Uncertainty How do we come up with our random variable of demand? Recall naïve method:

Demand Uncertainty

Demand Uncertainty and Forecasting Using the standard deviation of forecast error:

Example

Example