The incorporation of target performance measures and constrained optimisation in the newsboy problem

The solution of the classical Newsboy problem requires some knowledge of the costs of wastage as well as the costs of lost opportunity. Such knowledge is often hypothetical and generally unavailable. More readily available knowledge, particularly in complex organisations, often relates to targets for wastage and availability, especially where perishable goods are involved. These targets can be incorporated effectively into a generalised forecasting context with a broad distribution of demand patterns by the use of a formulated statistic that measures the suitability of the data for the achievement of such targets. The paper proposes a model and algorithm for optimising supply levels using these two performance measures and constrained optimisation of a target gain function.