Firms in both the manufacturing and service industries depend on inventory being available when needed to support operations. While it might be tempting to order a large volume of inventory to minimize the risk of running out, this is seldom an efficient solution. Fortunately, many analytical models exist to facilitate the most important question in inventory management: determining how much to order. The choice of which analytical model to use is driven by the consumer demand pattern and whether an opportunity exists to carry inventory forward into a future demand period. This note illustrates one such model: the newsvendor model. The basic model is first presented, representing a single ordering opportunity in advance of the demand period. This basic model is then extended later in the note to permit an opportunity to submit a second order inside the demand period.
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