Newspaper-boy Problem: Inventory decisions under uncertain demand

Case written by Shivram Apte as part of instruction material developed for teaching at Business Schools. Case facts are for discussion only and are not intended to be a demonstrator of correct or incorrect handling of management situation.

Sanotsh Khade stared at the pile of newspapers remaining unsold at the end of day and shook his head. He knew he had miscalculated again and stocked too much. His parents were not going to be pleased. Santosh ran a newspaper stall near the bus-stand in a small town near une. !ost of his customers were people who commuted to une for work by bus. He began his day at " am when he arrived at the bus stand in time to meet the distributor who came in from une with bundles of newspapers and maga#ines. Santosh had to make his first business decision for the day when he had to ascertain how many newspapers he should buy for the day. He then carried his inventory for the day to his kiosk $ a makeshift wooden platform with a polythene cover $ and got ready to sell to the commuters who would start arriving at %&'' am in time for the first bus to une. Santosh stocked ( newspapers that were popular in the area $ one )nglish and two !arathi dailes. A copy of the Times of India cost him *s +."' and he sold it for the printed retail price of *s ,. Maharashtra Times $ a !arathi paper from the same publisher cost him *s +.," and sold for *s +.-". Pudhari, a local newspaper cost him "' paise and sold for one *e +. Santosh had kept a diary of the daily demand for all three newspapers. An e.tract of the diary is presented in ).hibit +. Santosh knew that demand for each of the three newspapers did not fluctuate much across the days of the week and making a decision on how much to stock of each product should have been a relatively straightforward /ob. However0 he had mis-/udged demand again today and had ( 1imes of 2ndia copies0 , !aharashtra 1imes and ( udhari copies left over. He knew that these newspapers were worthless tomorrow. He had to figure out a way to fine-tune his decision making process for deciding how much of each item to stock on a given day.

).hibit +& 3emand for 4ewspapers 5in units6 in a month.

Date +-7eb-+' ,-7eb-+' (-7eb-+' 8-7eb-+' "-7eb-+' %-7eb-+' --7eb-+' 9-7eb-+' :-7eb-+' +'-7eb-+' ++-7eb-+' +,-7eb-+' +(-7eb-+' +8-7eb-+' +"-7eb-+' +%-7eb-+' +--7eb-+' +9-7eb-+' +:-7eb-+' ,'-7eb-+' ,+-7eb-+' ,,-7eb-+' ,(-7eb-+' ,8-7eb-+' ,"-7eb-+' ,%-7eb-+' ,--7eb-+' ,9-7eb-+' Times of India 21 20 21 19 21 18 20 19 18 20 20 19 21 19 19 21 22 20 19 21 22 21 20 19 20 21 20 19 Maharashtra Times 39 41 42 39 40 37 39 40 40 41 40 38 42 39 38 41 42 40 41 42 39 42 37 38 39 40 41 43 Pudhari 58 57 62 60 58 60 63 61 63 57 58 59 61 61 60 61 63 58 61 55 59 62 64 61 60 57 63 58