Some amount *M* of goods is in stock to begin with. As sales
continue, the stock decreases. At the pre-defined interval, *N*,
the stock level is checked, and the goods is re-ordered.

- It is possible that the inventory becomes negative, meaning the goods is in shortage.
- The
*lead time*, which is the time between the issurance of re-order and the arrival of the goods, can be considered as zero in many cases.

Example 2.3: The newspaper seller's problem

- The paper seller buys the papers for 33 cents each and sells for 50 cents each.
- The papers not sold at the end of the day are sold as scrap for 5 cents each.
- Newspapers can be purchased in bundles of 10. Thus the paper seller can buy 40, 50, 60, and so on. In the simulation shown in Table 2.18 the case of purchasing 70 newspapers is demonstrated.
- There are three types of newsdays, ``good'', ``fair'', and ``poor'' with probabilities of 0.35, 0.45 and 0.20.
- The demand distribution is listed in Table 2.15 on page 37.
- Profit is calculated as
profit = revenue - cost - lost profit from excess demand + salvage

- Table 2.16, 2.17 and 2.18 show the simulation tables.

Example 2.4: Simulation of an (M,N) inventory system.

- M is the maximum inventory level, assume it is 11 units.
- N is the length of review period, assume it is 5 days.
- The initial inventory is 3 units, and an initial order of 8 units is scheduled to arrive in 2 days. This is the initial settting of the simulation.
- Table 2.21 on page 41 shows the detail.