1. ISEN 315 Spring 2011 Dr. Gary Gaukler

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

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

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

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

6. Demand Uncertainty

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

8. Example

9. Example