Single Item Expected Profit

Autumn
Retail price 150 Cu 75
Purchase price 75 Co 35
Salvage price 40 NV Ratio 0.682
Mean demand 1000 Q* 1118
S.D. of demand 250

Quantity

Expected Expected Expected Expected Expected Expected Marginal

Ordered
Sales Leftover Shortfall Revenue Cost Profit Revenue
250 250 0 750 37489 18750 18739 149.85
300 300 0 700 44979 22500 22479 149.72
350 350 0 650 52460 26250 26210 149.49
400 399 1 601 59925 30000 29925 149.10
450 449 1 551 67366 33750 33616 148.47
500 498 2 502 74767 37500 37267 147.50
550 546 4 454 82107 41250 40857 146.05
600 594 6 406 89361 45000 44361 143.97
650 641 9 359 96492 48750 47742 141.12
700 686 14 314 103457 52500 50957 137.34
750 729 21 271 110209 56250 53959 132.55
800 770 30 230 116694 60000 56694 126.70
850 808 42 192 122861 63750 59111 119.83
900 842 58 158 128663 67500 61163 112.10
950 873 77 127 134060 71250 62810 103.72
1000 900 100 100 139029 75000 64029 95.00
1050 923 127 77 143560 78750 64810 86.28
1100 942 158 58 147663 82500 65163 77.90
1150 958 192 42 151361 86250 65111 70.17
1200 970 230 30 154694 90000 64694 63.30
1250 979 271 21 157709 93750 63959 57.45
1300 986 314 14 160457 97500 62957 52.66
1350 991 359 9 162992 101250 61742 48.88
1400 994 406 6 165361 105000 60361 46.03
1450 996 454 4 167607 108750 58857 43.95
1500 998 502 2 169767 112500 57267 42.50
1550 999 551 1 171866 116250 55616 41.53
1600 999 601 1 173925 120000 53925 40.90
1650 1000 650 0 175960 123750 52210 40.51
1700 1000 700 0 177979 127500 50479 40.28
1750 1000 750 0 179989 131250 48739 40.15

Page 1
 Single Item Expected Profit

178000

158000

Marginal Marginal
Zero Line
Cost Contribution 138000
75 74.85 0
75 74.72 0
75 74.49 0 118000

Dollars
75 74.10 0
75 73.47 0
75 72.50 0 98000
75 71.05 0
75 68.97 0
75 66.12 0 78000
75 62.34 0
75 57.55 0
75 51.70 0 58000
75 44.83 0
75 37.10 0
75 28.72 0 38000
75 20.00 0
75 11.28 0
75 2.90 0 18000
200 400 600 800
75 -4.83 0
75 -11.70 0
75 -17.55 0 Order Q
75 -22.34 0
75 -26.12 0
75 -28.97 0 Expected Revenue Expec
75 -31.05 0
160.00
75 -32.50 0
75 -33.47 0
75 -34.10 0 140.00
75 -34.49 0
75 -34.72 0
75 -34.85 0 120.00

100.00

80.00
Dollars

60.00

Page 2 40.00

20.00
 100.00

Single Item Expected Profit

80.00

Dollars
60.00

40.00

20.00

0.00
200 400 600 800

-20.00

-40.00

Order Qu

Marginal Revenue
Marginal Contribution

Page 3
 Single Item Expected Profit

0 800 1000 1200 1400 1600 1800

Order Quantity Q

Revenue Expected Cost Expected Profit

Page 4
 Single Item Expected Profit

0 800 1000 1200 1400 1600 1800

Order Quantity Q

Marginal Revenue Marginal Cost

Marginal Contribution Column L

Page 5
Evaluating Profit, Overstock, and Understock Given Ordering Policy
Order Quantity
Autumn Leaves Autumn Leaves
Mean demand (each product), mu = 1000 750 1125 375
Standard Deviation of Demand, s = 250 200 1100 400
Cost per unit, c = 75 90 1075 425
Retail price, p = 150 200 1050 450
Salvage Value, s = 40 50 1025 475
1000 500
Cost of overstocking per unit, Co = 35 40 975 525
Cost of understocking per unit, Cu = 75 110 950 550
Cycle service level, CSL = 0.682 0.733 925 575
900 600
Without capacity constraint 875 625
Optimal Stocking Quantity 1118 875 850 650
Expected Sales 948 718 825 675
Expected leftover stock 170 157 800 700
Expected shortfall 52 32 775 725
Expected Profit 65,189 72,642 750 750
Total expected profit 137,832 725 775
700 800
Total capacity available = 1500 675 825
650 850
625 875
600 900
575 925
550 950
525 975
500 1000
 Expected Sales Expected leftover Expected shortfall Expected profit
Autumn Leaves Autumn Leaves Autumn Leaves Autumn Leaves Total
951 373 174 2 49 377 65,186 40,896 106,082
942 397 158 3 58 353 65,163 43,515 108,678
933 421 142 4 67 329 65,039 46,093 111,132
923 444 127 6 77 306 64,810 48,621 113,431
912 467 113 8 88 283 64,474 51,088 115,562
900 490 100 10 100 260 64,029 53,482 117,511
887 512 88 13 113 238 63,474 55,791 119,265
873 533 77 17 127 217 62,810 58,001 120,811
858 554 67 21 142 196 62,039 60,097 122,136
842 574 58 26 158 176 61,163 62,065 123,228
826 593 49 32 174 157 60,186 63,892 124,078
808 610 42 40 192 140 59,111 65,566 124,678
789 627 36 48 211 123 57,946 67,075 125,021
770 643 30 57 230 107 56,694 68,410 125,104
750 657 25 68 250 93 55,363 69,563 124,926
729 670 21 80 271 80 53,959 70,532 124,491
708 682 17 93 292 68 52,488 71,313 123,801
686 693 14 107 314 57 50,957 71,910 122,867
664 702 11 123 336 48 49,373 72,325 121,698
641 710 9 140 359 40 47,742 72,566 120,308
618 718 7 157 382 32 46,069 72,642 118,711
594 724 6 176 406 26 44,361 72,565 116,926
570 729 5 196 430 21 42,622 72,347 114,969
546 733 4 217 454 17 40,857 72,001 112,858
522 737 3 238 478 13 39,071 71,541 110,612
498 740 2 260 502 10 37,267 70,982 108,249
 140,000

120,000

100,000

80,000
Expected Profit

60,000

40,000

20,000

-
500 600 700 800 900 1000

Order Quantity Autumn, QA (Order Quantity Leaves, QL= 1500 - QA)

 1000 1100

= 1500 - QA)
 Multi Item Stepwise approach

Ordering Multiple Products with Demand Uncertainty under Capacity Constraints

Example 1:
Autumn Leaves
Retail price 150 200
Purchase price 75 90
Salvage price 40 50
Mean demand 1000 750
S.D. of demand 250 200
Total Capacity 1500

Current Order Qty Marginal Contribution

Capacity left
Autumn Leaves Autumn Leaves Marginal Contribution at Qi
1500 0 0 74.997 109.987
1490 0 10 74.997 109.984 𝑀𝐶_𝑖 (𝑄_𝑖)=𝑝_𝑖 (1−𝐹_𝑖 (𝑄_𝑖))+𝑠_
1480 0 20 74.997 109.980
1470 0 30 74.997 109.976
1460 0 40 74.997 109.971
1450 0 50 74.997 109.965
1440 0 60 74.997 109.958
1430 0 70 74.997 109.949
1420 0 80 74.997 109.939
1410 0 90 74.997 109.927
1400 0 100 74.997 109.913
1390 0 110 74.997 109.897
1380 0 120 74.997 109.878
1370 0 130 74.997 109.855
1360 0 140 74.997 109.828
1350 0 150 74.997 109.798
1340 0 160 74.997 109.762
1330 0 170 74.997 109.720
1320 0 180 74.997 109.672
1310 0 190 74.997 109.617
1300 0 200 74.997 109.553
1290 0 210 74.997 109.480
1280 0 220 74.997 109.396
1270 0 230 74.997 109.301
1260 0 240 74.997 109.192
1250 0 250 74.997 109.069
1240 0 260 74.997 108.929
1230 0 270 74.997 108.770
1220 0 280 74.997 108.592
1210 0 290 74.997 108.391
1200 0 300 74.997 108.166
1190 0 310 74.997 107.914
1180 0 320 74.997 107.633
1170 0 330 74.997 107.320
1160 0 340 74.997 106.973
1150 0 350 74.997 106.587
1140 0 360 74.997 106.162
1130 0 370 74.997 105.693

Page 10
 Multi Item Stepwise approach

1120 0 380 74.997 105.176

1110 0 390 74.997 104.610
1100 0 400 74.997 103.991
1090 0 410 74.997 103.315
1080 0 420 74.997 102.579
1070 0 430 74.997 101.780
1060 0 440 74.997 100.914
1050 0 450 74.997 99.979
1040 0 460 74.997 98.971
1030 0 470 74.997 97.887
1020 0 480 74.997 96.724
1010 0 490 74.997 95.480
1000 0 500 74.997 94.153
990 0 510 74.997 92.740
980 0 520 74.997 91.239
970 0 530 74.997 89.650
960 0 540 74.997 87.971
950 0 550 74.997 86.202
940 0 560 74.997 84.342
930 0 570 74.997 82.391
920 0 580 74.997 80.351
910 0 590 74.997 78.222
900 0 600 74.997 76.006
890 0 610 74.997 73.705
880 10 610 74.996 73.705
870 20 610 74.995 73.705
860 30 610 74.994 73.705
850 40 610 74.993 73.705
840 50 610 74.992 73.705
830 60 610 74.991 73.705
820 70 610 74.989 73.705
810 80 610 74.987 73.705
800 90 610 74.985 73.705
790 100 610 74.982 73.705
780 110 610 74.980 73.705
770 120 610 74.976 73.705
760 130 610 74.972 73.705
750 140 610 74.968 73.705
740 150 610 74.963 73.705
730 160 610 74.957 73.705
720 170 610 74.950 73.705
710 180 610 74.943 73.705
700 190 610 74.934 73.705
690 200 610 74.924 73.705
680 210 610 74.913 73.705
670 220 610 74.901 73.705
660 230 610 74.886 73.705
650 240 610 74.870 73.705
640 250 610 74.852 73.705
630 260 610 74.831 73.705

Page 11
 Multi Item Stepwise approach

620 270 610 74.807 73.705

610 280 610 74.781 73.705
600 290 610 74.752 73.705
590 300 610 74.719 73.705
580 310 610 74.682 73.705
570 320 610 74.641 73.705
560 330 610 74.595 73.705
550 340 610 74.544 73.705
540 350 610 74.487 73.705
530 360 610 74.424 73.705
520 370 610 74.355 73.705
510 380 610 74.277 73.705
500 390 610 74.192 73.705
490 400 610 74.098 73.705
480 410 610 73.995 73.705
470 420 610 73.881 73.705
460 430 610 73.757 73.705
450 440 610 73.620 73.705
440 440 620 73.620 71.323
430 450 620 73.471 71.323
420 460 620 73.308 71.323
410 470 620 73.130 71.323
400 480 620 72.936 71.323
390 490 620 72.726 71.323
380 500 620 72.497 71.323
370 510 620 72.250 71.323
360 520 620 71.983 71.323
350 530 620 71.694 71.323
340 540 620 71.383 71.323
330 550 620 71.048 71.323
320 550 630 71.048 68.862
310 560 630 70.688 68.862
300 570 630 70.301 68.862
290 580 630 69.887 68.862
280 590 630 69.445 68.862
270 600 630 68.972 68.862
260 610 630 68.468 68.862
250 610 640 68.468 66.326
240 620 640 67.932 66.326
230 630 640 67.362 66.326
220 640 640 66.757 66.326
210 650 640 66.117 66.326
205 650 645 66.117 65.031 Start increments of 5
200 655 645 65.783 65.031
195 660 645 65.439 65.031
190 665 645 65.087 65.031
185 670 645 64.724 65.031
180 670 650 64.724 63.719
175 675 650 64.352 63.719
170 680 650 63.970 63.719

Page 12
 Multi Item Stepwise approach

165 685 650 63.578 63.719

160 685 655 63.578 62.391
155 690 655 63.176 62.391
150 695 655 62.764 62.391
145 700 655 62.342 62.391
140 700 660 62.342 61.047
135 705 660 61.910 61.047
130 710 660 61.467 61.047
125 715 660 61.014 61.047
120 715 665 61.014 59.687
115 720 665 60.551 59.687
110 725 665 60.077 59.687
109 726 665 59.981 59.687 Start increments of 1
108 727 665 59.884 59.687
107 728 665 59.787 59.687
106 729 665 59.690 59.687
105 730 665 59.592 59.687
104 730 666 59.592 59.414
103 731 666 59.494 59.414
102 732 666 59.395 59.414
101 732 667 59.395 59.139
100 733 667 59.296 59.139
99 734 667 59.197 59.139
98 735 667 59.097 59.139
97 735 668 59.097 58.865
96 736 668 58.997 58.865
95 737 668 58.896 58.865
94 738 668 58.795 58.865
93 738 669 58.795 58.589
92 739 669 58.693 58.589
91 740 669 58.591 58.589
90 741 669 58.489 58.589
89 741 670 58.489 58.313
88 742 670 58.386 58.313
87 743 670 58.283 58.313
86 743 671 58.283 58.037
85 744 671 58.179 58.037
84 745 671 58.075 58.037
83 746 671 57.970 58.037
82 746 672 57.970 57.760
81 747 672 57.865 57.760
80 748 672 57.760 57.760
79 749 672 57.654 57.760
78 749 673 57.654 57.482
77 750 673 57.548 57.482
76 751 673 57.441 57.482
75 751 674 57.441 57.204
74 752 674 57.334 57.204
73 753 674 57.227 57.204
72 754 674 57.119 57.204

Page 13
 Multi Item Stepwise approach

71 754 675 57.119 56.925

70 755 675 57.010 56.925
69 756 675 56.901 56.925
68 756 676 56.901 56.646
67 757 676 56.792 56.646
66 758 676 56.683 56.646
65 759 676 56.572 56.646
64 759 677 56.572 56.367
63 760 677 56.462 56.367
62 761 677 56.351 56.367
61 761 678 56.351 56.086
60 762 678 56.240 56.086
59 763 678 56.128 56.086
58 764 678 56.016 56.086
57 764 679 56.016 55.806
56 765 679 55.903 55.806
55 766 679 55.790 55.806
54 766 680 55.790 55.525
53 767 680 55.676 55.525
52 768 680 55.563 55.525
51 769 680 55.448 55.525
50 769 681 55.448 55.243
49 770 681 55.333 55.243
48 771 681 55.218 55.243
47 771 682 55.218 54.961
46 772 682 55.103 54.961
45 773 682 54.987 54.961
44 774 682 54.870 54.961
43 774 683 54.870 54.678
42 775 683 54.753 54.678
41 776 683 54.636 54.678
40 776 684 54.636 54.395
39 777 684 54.518 54.395
38 778 684 54.400 54.395
37 779 684 54.282 54.395
36 779 685 54.282 54.111
35 780 685 54.163 54.111
34 781 685 54.043 54.111
33 781 686 54.043 53.827
32 782 686 53.924 53.827
31 783 686 53.803 53.827
30 783 687 53.803 53.543
29 784 687 53.683 53.543
28 785 687 53.562 53.543
27 786 687 53.440 53.543
26 786 688 53.440 53.258
25 787 688 53.318 53.258
24 788 688 53.196 53.258
23 788 689 53.196 52.973
22 789 689 53.073 52.973

Page 14
 Multi Item Stepwise approach

21 790 689 52.950 52.973

20 790 690 52.950 52.687
19 791 690 52.826 52.687
18 792 690 52.703 52.687
17 793 690 52.578 52.687
16 793 691 52.578 52.400
15 794 691 52.453 52.400
14 795 691 52.328 52.400
13 795 692 52.328 52.114
12 796 692 52.202 52.114
11 797 692 52.076 52.114
10 797 693 52.076 51.827
9 798 693 51.950 51.827
8 799 693 51.823 51.827
7 799 694 51.823 51.539
6 800 694 51.696 51.539
5 801 694 51.568 51.539
4 802 694 51.440 51.539
3 802 695 51.440 51.251
2 803 695 51.312 51.251
1 804 695 51.183 51.251
0 804 696 51.183 50.963

Page 15
 Multi Item Stepwise approach

𝑖 (1−𝐹_𝑖 (𝑄_𝑖))+𝑠_𝑖 𝐹_𝑖 (𝑄_𝑖)−𝑐_𝑖

Page 16