Example 2.

7: The News Dealer's Inventory Problem

Click the button to recalculate the spreadsheet and generate a new trial.
Distribution of Newspapers Demanded
Demand
40
50
60
70
80
90
100

Demand Probabilities
Good
0.03
0.05
0.15
0.20
0.35
0.15
0.07

Fair
0.10
0.18
0.40
0.20
0.08
0.04
0.00

Poor
0.44
0.22
0.16
0.12
0.06
0.00
0.00

Seed for Random Numbers

Cumulative Probabilities
Good
0.03
0.08
0.23
0.43
0.78
0.93
1.00

Fair
0.10
0.28
0.68
0.88
0.96
1.00
1.00

Poor
0.44
0.66
0.82
0.94
1.00
1.00
1.00

12345

Simulation Table

Day
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Type of
Newsday
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Demand
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Revenue
from
Sales
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Lost
Profit
from
Excess
Demand
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Salvage
from Sale
of Scrap
Daily Cost
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
#VALUE!
$23.10
TOTAL PROFIT =

Daily
Profit
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

em

Daily Profit
(Column I)

new trial.

Bins
Type of Newsday
Type

Probability

Good
Fair
Poor

0.35
0.45
0.20

Cumulative
Probability
0.35
0.80
1.00

General Parameters
Purchase Price
$0.33
Selling Price
$0.50
Scrap Value
$0.05
Number Purchased by
News Dealer

-4

#VALUE!

0
4
8
12
16
20
>20

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

70

Occurrences

Frequency of Daily Profit

12
10
8
6
4
2
0
-4

0
4
8
12
Upper limit of bin

16

20

Frequency

>20

Experiment: Repeated Trials of the News Dealer's Inventory Problem

Number of Trials:
400
Link to Measure of Performance (Sample Values):
Name of Measure:
Link
Total (20-Day) Profit
#VALUE!

Trial
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38

Total (20Day) Profit

$114.70
$140.60
$138.90
$136.60
$129.90
$140.60
$122.60
$137.20
$142.30
$118.70
$156.80
$115.30
$156.30
$109.70
$136.70
$162.00
$142.30
$145.70
$105.20
$152.40
$107.40
$128.80
$159.80
$141.70
$172.10
$103.40
$109.10
$150.70
$99.50
$86.60
$146.80
$115.30
$151.30
$162.50
$140.00
$148.40
$124.30
$127.10

Bins
$40
$60
$80
$100
$120
$140
$160
$180
$200
$220
$240
>$240
Total =

Frequency
0
0
0
10
78
145
129
34
4
0
0
0
400

Average
Median

$135.49
$136.60

Minimum
Maximum

$86.60
$198.00

Seed for Random Numb

Histogram (Bin Frequencies for Total

160
Occurrences (No. of Trials)

Response Table

Click on Run Experiment to generate 400 trials, and to create

a histogram to show the distribution of the 400 samples of Total (20-Da
Multi-Trial Summary

145

140

129

120
100
78

80
60

34

40
20
0

10
0
$40

0
$60

0 $100 $120 $140 $160 $180

$80
Bin

NOTE: Bin 2 is all values <= 60 and > 40.

Bin 3 is all values <= 80 and > 60.
Frequency counts the number of trials falling in the associated bin.
For the News Dealer Problem, each trial consists of a simulation of 20 days.
The experiment consists of 400 trials, and measures Total 20-Day Profit.

39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89

$133.20
$164.80
$124.90
$132.10
$138.80
$167.60
$158.00
$151.80
$118.60
$160.80
$107.40
$124.80
$132.20
$158.60
$117.00
$106.30
$123.70
$131.60
$119.80
$159.10
$130.50
$138.90
$124.80
$129.90
$129.90
$106.80
$167.00
$126.00
$163.10
$159.10
$146.20
$130.50
$136.10
$130.50
$154.10
$105.70
$151.80
$159.10
$109.70
$118.10
$142.80
$143.40
$123.20
$128.20
$144.00
$117.00
$114.10
$149.60
$173.20
$155.20
$147.30

90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140

$167.00
$148.50
$178.80
$102.90
$111.40
$113.00
$164.20
$104.10
$133.80
$143.90
$169.30
$135.00
$118.10
$145.70
$151.90
$140.00
$129.30
$140.00
$124.90
$147.90
$151.80
$165.30
$159.70
$99.00
$138.40
$169.80
$152.40
$149.60
$141.10
$126.60
$102.30
$122.60
$138.30
$128.20
$132.70
$114.70
$140.60
$149.00
$133.80
$137.20
$162.40
$143.40
$129.90
$125.40
$112.50
$145.10
$126.50
$147.30
$149.60
$135.00
$133.80

141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191

$127.10
$161.40
$137.80
$152.30
$133.30
$108.00
$130.50
$113.60
$109.10
$124.90
$130.50
$127.10
$106.30
$141.70
$164.80
$116.50
$146.20
$144.00
$149.00
$124.30
$108.00
$136.60
$171.00
$113.10
$146.30
$113.60
$126.00
$194.60
$113.60
$128.20
$102.40
$132.70
$124.30
$150.20
$118.10
$154.00
$147.90
$151.30
$160.80
$137.80
$166.50
$146.20
$111.40
$153.00
$140.10
$150.70
$141.20
$181.10
$95.60
$125.90
$119.20

192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242

$132.20
$141.70
$138.80
$117.50
$128.20
$118.10
$138.30
$150.70
$144.60
$137.10
$133.80
$120.30
$112.40
$153.00
$128.80
$142.30
$138.90
$119.30
$132.10
$124.30
$149.60
$123.20
$112.50
$127.10
$134.40
$133.30
$136.10
$119.20
$124.90
$129.90
$116.90
$159.70
$164.70
$106.90
$158.60
$97.90
$135.50
$155.30
$102.40
$99.00
$122.00
$128.80
$145.70
$156.30
$147.90
$125.40
$151.90
$146.80
$170.40
$143.40
$104.00

243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
260
261
262
263
264
265
266
267
268
269
270
271
272
273
274
275
276
277
278
279
280
281
282
283
284
285
286
287
288
289
290
291
292
293

$133.30
$158.60
$110.20
$144.50
$146.80
$141.10
$154.10
$122.60
$151.30
$141.70
$155.80
$138.90
$163.10
$110.20
$109.10
$136.70
$129.30
$140.00
$150.20
$106.90
$123.20
$100.10
$123.70
$125.40
$156.80
$131.60
$152.40
$155.70
$136.70
$160.90
$121.50
$124.20
$150.70
$142.20
$142.90
$145.10
$144.00
$133.20
$154.10
$142.30
$126.00
$101.80
$139.50
$127.70
$114.70
$135.00
$101.30
$145.70
$127.10
$147.40
$140.60

294
295
296
297
298
299
300
301
302
303
304
305
306
307
308
309
310
311
312
313
314
315
316
317
318
319
320
321
322
323
324
325
326
327
328
329
330
331
332
333
334
335
336
337
338
339
340
341
342
343
344

$98.40
$163.00
$120.90
$119.80
$108.60
$110.80
$130.50
$168.70
$132.10
$151.30
$132.20
$137.80
$135.00
$108.50
$122.00
$155.80
$198.00
$109.70
$144.50
$136.70
$120.90
$158.00
$122.00
$137.20
$147.90
$138.40
$132.20
$101.80
$95.10
$129.40
$132.10
$102.40
$160.80
$137.80
$131.60
$155.20
$129.30
$128.20
$144.00
$155.20
$127.10
$136.10
$147.90
$128.20
$137.70
$114.70
$131.60
$152.40
$91.10
$118.10
$150.70

345
346
347
348
349
350
351
352
353
354
355
356
357
358
359
360
361
362
363
364
365
366
367
368
369
370
371
372
373
374
375
376
377
378
379
380
381
382
383
384
385
386
387
388
389
390
391
392
393
394
395

$122.60
$144.00
$142.30
$135.50
$159.80
$143.40
$145.60
$128.80
$145.70
$129.90
$147.30
$159.70
$154.10
$138.30
$142.30
$88.30
$157.50
$139.50
$124.80
$140.60
$121.50
$145.10
$123.10
$144.00
$141.70
$102.30
$131.60
$142.80
$119.80
$170.90
$114.20
$102.90
$116.40
$109.70
$165.90
$163.60
$118.10
$123.70
$136.60
$190.70
$132.10
$156.40
$137.30
$150.70
$102.30
$147.90
$163.60
$177.10
$140.60
$135.50
$141.70

396
397
398
399
400

$129.40
$110.20
$160.80
$127.60
$118.10

oblem

You may change any value that is this color (green).

Then click on Run Experiment.
This cell is linked to the output of a trial, and is
the source of the data in Column B under Total (20-Day) Profit.
nerate 400 trials, and to create
he 400 samples of Total (20-Day) Profit.

Seed for Random Numbers

12345

in Frequencies for Total 20-Day Profit)

145
129

78

34
10

0 $240
0 >$240
0
0 $100 $120 $140 $160 $180 $200 $220
Bin

ociated bin.
imulation of 20 days.
tal 20-Day Profit.

Explanation of Model Logic:

You may modify the Example by changing any of the values with a green
background.

Discuss the relative value of each s

variation in "Total 20-Day Profit". T

Average, Median, Minimum and Ma

How to generate random values:

For type of newsday and demand, use the VB function "Discrete" supplied in
this workbook. To see an example, look at the formula in cells C19 and C20.
To see the Visual Basic code, enter alt+F11 or click Tools/Macro/Visual Basic
Editor on the menu.
How to use it: Discrete(Range for Cumul Prob, Range for Service Times)

A "Gotcha" when using strings:

When I first solved this problem, I typed "Good ", "Fair" and "Poor" as the 3
possible types of Newsdays. In the Simulation Table in the Demand column, I
type "IF(C19="Good", ". Do you see my mistake?
It was comparing "Good" to "Good " (with an extra space at the end), so the
"IF" macro never found them equal. So it generated a "Good " day but never
used the "Good" probabilities to generate a demand. Luckily (for me!), I
caught the mistake. How?
I was not getting a Total Profit (over 20 days) nearly as high as we got in
previous editions of the book with the manual simulations. So I looked around
until finding the mistake.

for understanding how total 20-day

next.

he relative value of each statistic for gaining understanding of the

n "Total 20-Day Profit". That is, discuss the relative merits of:

Median, Minimum and Maximum, and the Frequency Graph,

standing how total 20-day profit varies from one 20-day period to the