The single‐period inventory control problem: a pedagogical approach

This paper deals with the newsboy problem and proposes a pedagogical approach for its teaching in engineer and business schools. In most cases, one studies the optimal order quantity that maximises the expected revenue. In some cases, one determines the expected cost itself, but never the associated risk. In this paper, we study the standard deviation of the expected cost for two classical models (including or not salvage revenue) and for three classical distributions (normal, uniform and exponential). The formulas can be drawn with any spreadsheet program and the student can evaluate the expected revenue and the risk associated with any ordering value. To illustrate the proposed formulas, numerical examples are given.