Hamptonshire Case

9-698-053

REV: AUGUST 30, 2002

V.G. NARAYANAN ANANTH RAMAN

Hamptonshire Express

Problem #1

Anna Sheen, upon graduating from a Boston-area university with a degree in journalism and operations research, returned to her hometown of Hamptonshire, Pennsylvania, to start a daily newspaper. The Hamptonshire Express emphasized local news which Sheen believed was not adequately covered by big-city newspapers such as the The Philadelphia Inquirer, Pittsburgh PostGazette, and The New York Times. Sheen daily wrote stories and articles around news and feature material that she gathered from around town, and typeset the newspaper using desktop software and a PC leased from a large Pittsburgh-area retailer. She estimated her lease cost at approximately $10 per day. The newspapers were printed overnight by a local printer at a marginal cost of $0.20 per copy (i.e., the printer charged 20 cents for each additional copy of a newspaper). Anna sold the copies the following morning from 6 a.m. to 10 a.m. from a newsstand at the intersection of Main Street and Center Street in the center of Hamptonshire. Newsstand rental was $30 per day. Express was sold to consumers for $1 per copy. Copies not sold by 10 a.m. were discarded. Demand for newspapers was unpredictable; Sheen estimated demand daily before delivering it to the printer. Based on data from similar entrepreneurial ventures and interviews with potential Hamptonshire customers, she estimated that daily demand for the Express was normally distributed with a mean of 500 and standard deviation of 100. a. How many newspapers should Sheen stock? Use the simulation in the spreadsheet “Hamptonshire Express: Problem #1” to identify the optimal stocking quantity.1 What is the profit at this stocking quantity? Verify that the value derived in part (a) is consistent with the optimal stocking quantity in the Newsvendor model.2

b.

1 You can download all spreadsheets from . 2 Optimal stocking quantity in the Newsvendor model...