Supply Chain Management: Customer Service and Rapid Response - Edubirdie

University:
Massachusetts Institute of Technology
Course:
15.501/516 | Accounting
Academic year:

2023
Views:

234

Pages:

4
Author:

aegrl2957zp

Double Marginalization… Manufacturer (M) produces garment at cost c = $40 The selling price is r = $100, the salvage value s = $30. Demand is normally distributed with mean µ=100 and Standard Deviation σ = 30. System 1: M sells directly to customer. Standard Newsboy Problem: r−s P(d ≤ q ) = = 0.86 ⇒ z = 1.068 r −c ⇒ Lot Size q = 100 + 1.068 * 30 = 132 ⇒ Expected Profit $ 5,560 (Simulation Result) …Double Marginalization… System 2: M sells to Retailer at Price w = $ 70. Now Retailer solves Standard Newsboy Problem: r−s P(d ≤ q ) = = 0.43 ⇒ z = −0.18 r−w ⇒ Lot Size q = 100 + -0.18 * 30 = 95 ⇒ Expected Profit Retailer $ 2,165 Manufacturer $ 2,838 System $ 5,003 Before: System $ 5,560 !!! …Double Marginalization… System 3: M sells to Retailer at Price w, and offers to buy back excess at Buy Back Price v. Now Retailer solves Standard Newsboy Problem: r −v P(d ≤ q ) = r−w As long as r −v r −s = r −w r −c total system will remain at maximum of $ 5,560. Choose w & v combination that is “mutually palatable”! $ 6,000 $ 5,000 Manufacturer `$ 4,000 $ 3,000 $ 2,000 Retailer $ 1,000 0 40 30 50 42 60 53 70 65 80 77 90 88 100 ~100 Buy Back Price v paid by Mfct. Price w Charged to Retailer Profit Split: Manufacturer - Retailer

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