Chapter 14

# Chapter 14 - Chapter 14 Sourcing Decisions in a Supply...

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Unformatted text preview: Chapter 14: Sourcing Decisions in a Supply Chain 1. With no buyback: = + = + = 9 12 12 * C C C CSL o u u 0.571 Optimal lot-size = ) , , ( * * σ μ CSL O NORMINV = = NORMINV(0.571,20000,5000) = 20,900 Given that: Border’s sale price (p) = \$24 Border’s salvage value (s = b) = \$3 Border’s cost (c) = \$12: Expected profits for Border’s = ( p – s ) μ NORMDIST(( O – μ )/ σ , 0, 1, 1) – ( p – s ) σ NORMDIST((O – μ )/ σ , 0, 1, 0) – O (c – s) NORMDIST(O, μ , σ , 1) + O (p – c) [1 – NORMDIST(O, μ , σ , 1)] = \$198,784 Expected overstock = ( O – μ ) NORMDIST ( (O – μ )/ σ , 0, 1, 1) + σ NORMDIST ( (O – μ )/ σ , 0, 1, 0) = 2,477 Expected understock = ( μ – O )[1 – NORMDIST ( (O – μ )/ σ , 0, 1, 1)] + σ NORMDIST ( (O – μ )/ σ , 0, 1, 0) = 1,577 Given that: Publisher’s sale price (c) = \$12 Publisher’s buyback price (b) = \$0 Publisher’s cost (v) = \$1 Publisher’s expected profit = O(c-v) – (overstock)(b) = \$229,901 Total supply chain profit = \$198,784 + \$229,901 = \$428,685 With buyback: We reevaluate the profits for Border’s (with c = b = 8) and the publisher (with b = 5) Borders' order size, O* 23372 Expected overstock 4118 Expected understock 746 Expected profit for Border’s = \$214,578 Expected profit for publisher = \$236,506 Total supply chain profit = \$451,084 EXCEL worksheet 14-1 illustrates these computations 2. With no buyback: = + = + = 01 . 5 99 . 9 99 . 9 * C C C CSL o u u 0.666 Optimal lot-size = ) , , ( * * σ μ CSL O NORMINV = = NORMINV(0.666,10000,5000) = 12,144 Given that: Blockbuster’s sale price (p) = \$19.99 Blockbuster’s salvage value (s = b) = \$4.99 Blockbuster’s cost (c) = \$10: Expected profits for Blockbuster = ( p – s ) μ NORMDIST(( O – μ )/ σ , 0, 1, 1) – ( p – s ) σ NORMDIST((O – μ )/ σ , 0, 1, 0) – O (c – s) NORMDIST(O, μ , σ , 1) + O (p – c) [1 – NORMDIST(O, μ , σ , 1)] = \$72,609 Expected overstock = ( O – μ ) NORMDIST ( (O – μ )/ σ , 0, 1, 1) + σ NORMDIST ( (O –...
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Chapter 14 - Chapter 14 Sourcing Decisions in a Supply...

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