- Bower is an outdoor clothing accessories chain that produces a line of hats for $10 from its Asian supplier, BowerSports. Unfortunately at the time of order placement, demand is uncertain. Bower forecasts that its demand is normally distributed with a mean of 2,100 and standard deviation of 1,200. The hats are sold for $22. Unsold hats have little salvage value: Bower simply donates them to charity.
- What order quantity, Q, maximizes Bower’s expected profit?
For the remaining questions assume the order quantity Q = 3,000 (Not what you calculated in part a)
- What are the expected lost sales?
- What are the expected sales?
- What is the expected left over inventory?
- What is its expected profit?
- What is the expected fill rate
- What is its stock-out probability?
- Dan McClure’s bookstore must decide how many copies of a book, Power and Self-Destruction, to order. The book’s retail price is $20 and the wholesale price is $12. The salvage value is $8. Dan believes the demand can be represented by a normal distribution with a mean of 200 and a standard deviation of 80.
- Dan prides himself on good customer service. His motto is “Dan has what you want to read”. Using the NV model, what quantity should he order for a 95 percent expected fill rate?
- How many books should Dan order if instead he wants to achieve a 95 percent in-stock probability?
- Dan decides to develop his own forecast of book sales. He collected data on recent books he felt matched the characteristics of Power and Self-Destruction. Using these data to construct an empirical distribution function, what would be the optimal order quantity, Q? (Assume Dan’s initial forecast is 200 books.)
|Book||Actual Demand||Forecast||A/F Ratio||Book||Actual Demand||Forecast||A/F Ratio|
This data is also available for download as an Excel spreadsheet.