How the newsboy model got its name
In the High and Far-off Times, when models and humans lived together, where models could have human children, and humans could have model children, there was one model, a new model, a human’s child, who lived with all its model relatives and human relatives. This model had no name, but it was full of odd observations, and it was full of quirky questions, so that’s what it did. It observed models, and it observed humans. And it questioned models, and it questioned humans. And this model who had no name lived in a small town in England, and filled the town and the whole entire country of England with its odd observations and quirky questions.
For a few days, it observed its uncle, who was a baker, and asked if it could help him decide how many loaves of bread to bake every day. Its baker uncle first glared at it, then berated it, and told it to go away. For the next few weeks, it observed its aunt, who was a pasta maker, and asked if she needed help to decide how many bags of pasta to make every week. Its pasta maker aunt first glared at it, then berated it, and told it to go away. For the next few months, it observed its aunt, who was the uncapacitated lot sizing model, and asked if she needed help to decide how to plan if random became the monthly demand. Its uncapacitated lot sizing model aunt first glared at it, then berated it, and told it to go away. For the next few years, it observed its uncle, who was the economic order quantity model, and asked if it could help him decide what to do if random became the rate of annual demand. Its economic order quantity uncle first glared at it, then berated it, and told it to go away. And this model who had no name my dear reader, was still full of odd observations and quirky questions!
It made odd observations about everything. It asked quirky questions about everything. It could not help it. All its model uncles and human uncles, and its model aunts and human aunts first glared at it, then berated it, and told it to go away. And still this model who had no name was full of odd observations and quirky questions. One fine morning it asked a new fine question that it had never asked before. ‘How does a newsvendor know how many copies of newspaper to order every day?’ Then everybody who is quite irked and a bit vexed said ‘Enough!’ and first glared at it, then berated it, and told it to go away. And that dark night, away and away, it went away.
It went and went, away it went, and met a Francis Y. Edgeworth, with th-at name I must say not a model but a human, who was a philosopher and a political economist, who was also lost in thinking about banks’ financials. It observed him, and asked if it could help him decide how many bank notes to have in the bank in the presence of random demand for notes from depositors. Francis Y. Edgeworth did not glare at it, did not berate it, and did not tell it to go away. So, it went on to say, ‘the solvency and profits of the banker depend upon the probability that he will not be called upon to meet at once more than a certain amount of his liabilities, for which you may need to study law of errors, and for this you need to think like a professor of Probabilities, not like a professor of Calculus.’ Francis Y. Edgeworth looked at it, and smiled at it, and thanked it for showing him the way.
It went and went, away it went, and met a Herbert E. Scarf, with th-at name, of course, another human, who was interested in economics but was shoved into a Department of Logistics. It observed him, and asked if it could help him decide how many units of a single nondurable item to purchase in the face of random demand. Herbert E. Scarf did not glare at it, did not berate it, and did not tell it to go away. So it went on to say, ‘if q units were purchased and the demand were X, then the actual sales would be min{q, X}, and if the unit sales prices were r and the unit purchase cost were c, then it is easy to obtain the optimal quantity to be purchased as the solution of the equation 1-F(q)=c/r.’ Herbert E. Scarf looked at it, and smiled at it, and thanked it for showing him the way.
It went and went, away it went, and it met a Philip M. Morse, a physicist, and George E. Kimball, a quantum chemist, what do you think, of course, both humans with th-ose names, and asked if it could help them solve a few of the problems that gave them a lot of stress in the name of national defense. Philip M. Morse and George E. Kimball did not glare at it, did not berate it, and did not tell it to go away. So, it went on to say, ‘consider the case of a newsboy who is required to buy his papers at 2 cents and sell them at 3 cents, and is not allowed to return his unsold papers. He has found by experience that he has on average 10 customers a day, and that customers appear at random. How many papers should he buy?’ They looked at it, and smiled at it, and thanked it for showing them the way.
They asked its name. It said it had no name. They seemed surprised and further inquired, ‘Well, would you like us to give you a name?’ It said, ‘Yes, if you would not be bothered. I would be so delighted.’ They said, ‘Well, from this day on, you will be called the Model of Newsboy.’ The model who now had a name looked at them, and smiled at them, and thanked them for giving it a name. It said ‘I’ll remember that; and now I think I’ll go back to all my dear model uncles and model aunts and all my dear human uncles and human aunts.’
One fine evening the Model of Newsboy came back to all its dear model uncles and model aunts and all its dear human uncles and human aunts, and said ‘How do you do?’ They were very glad to see it, and immediately said, ‘We are sure you still have lots of odd observations and quirky questions. But do tell us, now that you have traveled the world do you now have any awe-inspiring answers?’
‘Ooh,’ said the Model of Newsboy. ‘You got that right, I do have a lot of awe-inspiring answers, and I’ll tell you all.’ Then, it told her baker uncle how many loaves of bread to bake, and told her pasta maker aunt how many bags of pasta to make, and told her uncapacitated lot sizing model aunt how to plan, and told her economic order quantity model uncle what to do. The baker uncle, and the pasta maker aunt, and the uncapacitated lot sizing model aunt, and the economic order quantity model uncle did not glare at it, did not berate it, and did not tell it to go away. But they looked at it, and smiled at it, and thanked it for showing them the way.
So, my dear reader, as you ponder how an odd little model with a quirky objective function and an awe-inspiringly elegant solution can show you the way to navigate the trade-off between the cost of having too much inventory and the cost of having too little inventory (for loaves of bread to bake per day, or bags of pasta to make per week, or whichever item you choose to stock per whatever planning period length you wish to clock), make your own odd observations and ask your own quirky questions to find some awe-inspiring answers. You, and only you, know what you see or hear or taste or touch. So, make your observations. You, and only you, know what you wonder or ponder. So, ask your questions. You may not know, but I sure do know, that your observations and your questions will unravel many, many awe-inspiring answers.
PS: If this sounds oddly familiar, then you must have read “How the Elephant Got his Trunk” from Just So Stories by Rudyard Kipling. I found this story by the way of Ursula K. Le Guin as I followed a crumb she dropped in Steering the Craft. This too is an attempt to make some topics that I teach tell their stories. In this case, I want to thank Rachel Chen, T.C.E. Cheng, Tsan-Ming Choi, and Yulan Wang, who seem to have done some investigation to reveal the origin story of the Newsboy Model, and the interested reader should look into the following published work, and the references therein for other bits and pieces. Since this is fiction after all, I did take some liberty changing the order of events.
Chen R , Cheng TCE, Choi T-M, Wang Y. (2016) Novel advances in applications of the newsvendor model, Decision Sciences, 47(1): 8-10.
Edgeworth FY. (1988). The mathematical theory of banking, Journal of the Royal Statistical Society, 51(1): 113-127. https://www.jstor.org/stable/2979084 [This is a must read just to see how papers were written in 1880s.]
Morse PM, Kimball GE. (1946). Methods of Operations Research: Summary Technical Report of Division 6, National Defense Research Committee, Volume 2A. Available via the United States Library of Congress at https://www.loc.gov/item/2015490946/ [This book is a must have just to skim through and see how the field of operations research came to be in 1940s.]
Scarf HE (2002). Inventory theory, Operations Research, 50(1): 186-191.
