Sensitivity analysis of the newsboy model
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.
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