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Session12handout - Supply Chain Modeling...

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Supply Chain Modeling Session 12: Hamptonshire Express Atalay Atasu
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Objective of Today’s Class Explore centralized vs. decentralized supply chains  Introduce the double marginalization phenomenon Coordinating the supply chain using buyback  contracts Briefly introduce some other commonly used  contracts Franchise Fee Revenue Sharing  Quantity Flexibility
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Problem 1: Newsvendor c=0.2 How many papers should Anna stock? Price: $ 1 100 500 = σ = μ and Demand is Normally distributed with mean μ=500 and standard deviation σ=100 The cost of a newspaper is c= $ 0.2 and the retail price is r= $ 1
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Problem 1: Order Quantity and Profit Change in Profit as Stocking Level Changes -100 -50 0 50 100 150 200 250 300 350 -150 50 250 450 650 850 1050 stocking level profit Optimal order quantity is 584 Optimal profit is $ 332
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Problem 1: Optimal Order Quantity From Table A1
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Problem 2: Newsvendor with effort Demand is Normal with μ=500+50√h and σ=100 Opportunity cost of Anna’s time is $ 10 per hour How many hours should Anna invest (h) for the profile section? What explains Anna’s choice of effort? c=0.2 Price: $ 1 100 50 500 = σ + = μ and h
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Problem 2: Optimal Effort Calculation
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Problem 3a: Decentralized Supply Chain c=0.2 Price: $ 1 w=0. 8 100 50 500 = σ + = μ and h What is Ralph’s optimal stocking quantity? (assuming h=4) Anna exerts effort, h
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Problem 3a: Ralph’s Order Quantity
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Problem 3b: Centralized vs. Decentralized Supply Chains Why is the stocking quantity of Ralph different  from the stocking quantity of Anna in problem  2? How is Ralph’s profit different from Anna’s  profit in problem 2? Why do you think the stocking quantities and  profits are different? 
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Summary: Problem 2 and 3
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Solutions to Problem 3c, 3d, and 3e Problem 3c: How Does Anna’s optimal effort differ from the effort in problem 2? Problem 3d: How does changing the transfer price impacts Anna’s effort and Ralph’s stocking quantity?
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