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  • Case Problem: Specialty Toys: 1. Information Provided by The Forecaster

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    Phạm Tùng
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    The document provides information from a forecaster about demand for a toy called Weather Teddy. The forecaster estimates demand will follow a normal distribution with a mean of 20,000 units and standard deviation of 5,102 units. Several order quantities are considered: 15,000, 18,000, 24,000, 28,000, and 22,653 units. Profit projections are provided for each order quantity under scenarios where demand is 10,000, 20,000, or 30,000 units. An optimal order quantity of 18,980 units is identified using a single-period inventory model that maximizes expected profit.

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    The document provides information from a forecaster about demand for a toy called Weather Teddy. The forecaster estimates demand will follow a normal distribution with a mean of 20,000 units and standard deviation of 5,102 units. Several order quantities are considered: 15,000, 18,000, 24,000, 28,000, and 22,653 units. Profit projections are provided for each order quantity under scenarios where demand is 10,000, 20,000, or 30,000 units. An optimal order quantity of 18,980 units is identified using a single-period inventory model that maximizes expected profit.

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    11 views4 pages

    Case Problem: Specialty Toys: 1. Information Provided by The Forecaster

    Uploaded by

    Phạm Tùng
    The document provides information from a forecaster about demand for a toy called Weather Teddy. The forecaster estimates demand will follow a normal distribution with a mean of 20,000 units and standard deviation of 5,102 units. Several order quantities are considered: 15,000, 18,000, 24,000, 28,000, and 22,653 units. Profit projections are provided for each order quantity under scenarios where demand is 10,000, 20,000, or 30,000 units. An optimal order quantity of 18,980 units is identified using a single-period inventory model that maximizes expected profit.

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    of 4

    CaseProblem:SpecialtyToys

    1.

    Informationprovidedbytheforecaster

    Atx=30,000,
    z

    x 30, 000 20, 000

    1.96

    30, 000 20,000


    5102
    1.96

    20, 000
    Normaldistribution
    2.

    5102

    +15,000
    z

    15, 000 20, 000


    0.98
    5102

    P(stockout)=0.3365+0.5000=0.8365
    +18,000
    z

    18, 000 20, 000


    0.39
    5102

    P(stockout)=0.1517+0.5000=0.6517
    +24,000
    z

    24, 000 20, 000


    0.78
    5102

    P(stockout)=0.50000.2823=0.2177

    +28,000
    z

    28, 000 20, 000


    1.57
    5102

    P(stockout)=0.50000.4418=0.0582

    3.

    Profitprojectionsfortheorderquantitiesunderthe3scenariosarecomputedbelow:
    OrderQuantity:15,000
    UnitSales
    10,000
    20,000
    30,000

    TotalCost
    240,000
    240,000
    240,000

    at$24
    240,000
    360,000
    360,000

    Sales

    at$5
    25,000
    0
    0

    Profit
    25,000
    120,000
    120,000

    OrderQuantity:18,000
    UnitSales
    10,000
    20,000
    30,000

    TotalCost
    288,000
    288,000
    288,000

    at$24
    240,000
    432,000
    432,000

    Sales

    at$5
    40,000
    0
    0

    Profit
    8,000
    144,000
    144,000

    OrderQuantity:24,000
    UnitSales
    10,000
    20,000
    30,000

    TotalCost
    384,000
    384,000
    384,000

    at$24
    240,000
    480,000
    576,000

    Sales

    at$5
    70,000
    20,000
    0

    Profit
    74,000
    116,000
    192,000

    OrderQuantity:28,000
    UnitSales
    10,000
    20,000
    30,000

    TotalCost
    448,000
    448,000
    448,000

    at$24
    240,000
    480,000
    672,000

    Sales

    at$5
    90,000
    40,000
    0

    Profit
    118,000
    72,000
    224,000

    4.

    Weneedtofindanorderquantitythatcutsoffanareaof.70inthelowertailofthenormalcurvefordemand.

    Q 20, 000
    0.52
    5102

    Q=20,000+0.52(5102)=22,653
    Theprojectedprofitsunderthe3scenariosarecomputedbelow.
    OrderQuantity:22,653
    UnitSales
    10,000
    20,000
    30,000
    5.

    TotalCost
    362,488
    362,488
    362,488

    at$24
    240,000
    480,000
    543,672

    Sales

    at$5
    63,265
    13,265
    0

    Profit
    59,183
    130,817
    181,224

    Avarietyofrecommendationsarepossible.Thestudentsshouldjustifytheirrecommendationbyshowingthe
    projectedprofitobtainedunderthe3scenariosusedinparts3and4.Anorderquantityinthe18,000to
    20,000rangestrikesagoodcompromisebetweentheriskofalossandgeneratinggoodprofits.
    Whilethestudentsdon'thavethebenefitofthefollowing,asingleperiodinventorymodel(sometimescalled
    thenewsvendormodel)showshowtofindanoptimalsolution.Weoutlinethatsolutionbelow.
    Asingleperiodinventorymodelrecommendsanorderquantitythatmaximizesexpectedprofitbasedonthe
    followingformula:

    P(Demand Q* )

    where

    istheprobabilitythatdemandislessthanorequaltotherecommendedorder
    Q* cu
    co
    quantity, . isthecostofunderestimatingdemand(havinglostsalesbecauseofastockout)and isthe
    costperunitofoverestimatingdemand(havingunsoldinventory).SpecialtywillsellWeatherTeddyfor$24
    cu
    perunit.Thecostis$16perunit.So, =$24$16=$8.Ifinventoryremainsaftertheholidayseason,
    co
    Specialtywillsellallsurplusinventoryfor$5aunit.So, =$16$5=$11.
    8
    P(Demand Q* )
    0.4211
    8 11

    Q* 20, 000
    0.20
    5102

    Q* 20, 000 0.20(5102) 18,980

    Theprofitprojectionsforthisorderquantityarecomputedbelow:
    OrderQuantity:18,980
    Sales
    UnitSales
    10,000
    20,000
    30,000

    TotalCost
    303,680
    303,680
    303,680

    at$24
    240,000
    455,520
    455,520

    at$5
    44,900
    0
    0

    Profit
    18,780
    151,840
    151,840

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