Single Period Model
The single period model, also known as the newsvendor or newsboy model, is an inventory decision framework for one-time ordering under uncertain demand. It applies when replenishment is unavailable during the selling horizon and leftover units have little or no value. The planner chooses an order quantity before demand is realized, balancing shortage costs against excess costs.
On a manufacturing shop floor, the single period model governs any material commitment made before a campaign that cannot be repeated. Typical targets include date-sensitive packaging, seasonal SKUs, promotional labels, short-life chemicals, and components that become scrap after a production window closes. A plant must order raw materials or finished goods ahead of a single run tied to a forecasted spike, then stage them for kitting and line-side availability with no restock option. The order quantity is set from the demand distribution using the critical ratio, not from deterministic EOQ-style consumption. If the forecast misses high, the line starves, causing stoppages and premium freight. If it misses low, surplus inventory becomes dead stock requiring markdowns, scrapping, or write-offs. Planners therefore need reliable shortage and salvage cost estimates before the period opens.
When is the single period model preferred over EOQ?
When demand is random, replenishment is impossible within the horizon, and leftover inventory loses most of its value; EOQ assumes deterministic demand and continuous replenishment.
What is the core optimization rule for the single period model?
Order up to the demand quantile where the critical ratio equals shortage cost divided by shortage cost plus excess cost; this balances expected overage and underage costs.
How is existing on-hand inventory handled in the single period model?
Existing stock is compared with the target order-up level; if on-hand inventory already exceeds the target, the optimal new order is zero, otherwise order the difference.