Name : Le Dinh Quoc Huy

ID : IELSIU17024
Class : Tuesday Morning

HOMEWORK 3
Logistics Engineering and Supply Chain Design

Exercise 1:
 Decentralization level: 1 – 6 with respect to the most centralized – the most decentralized.
 Magnitude of safety stock: 1 – 6 with respect to the most – the least.
 The risk pooling benefit: 1 – 6 with respect to the most – the least.

Manufacturer Manufacturer Distributor

Retailer Storage Manufacturer Manufacturer
Storage with Storage with Storage with
  with Storage with Storage with
In-Transit Package Carrier Last-Mile
Customer Pickup Direct Shipping Pickup
Merge Delivery Delivery
Decentralization
4 1 1 2 3 1
level
Magnitude of
1 4 4 3 2 4
safety stock
The risk pool
4 1 1 2 3 1
benefits

Exercise 2:

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Applying following formula
1. Profit of retailers by case
 If Q <= D: Profit of retailers by case = (Retailer Price – Wholesaler Price) * Q
 If Q > D: Profit of retailers by case = Retailer Price*D – Wholesaler Price * Q + (Q-D) * Salvage Value
2. Retailer Expected Profit
Retailer Expected Profit=∑ Profit of retailers by case∗Probability of the case
3. Manufacturer Profit
Manufacturer Profit = Optimal Q * (Wholesaler Price – Production Cost)
4. Joint Probabilty
P(2 events happen simultaneously) = P(Event 1 happens) * P(Event 2 happens)

Expected profit
Q
of 1 retailer

1000 45000
2000 90000
3000 135000
4000 180000
5000 225000
6000 270000
7000 315000
8000 360000
9000 393450
System 1: Decentralized system 10000 426900
11000 448800
Demand Probabilistic Optimal Q (each retailer) 12000
12000 470700
8000 0.11 Total Retailer Profit (2 retailers) 941400
13000 463200
10000 0.11 14000 455700 Manufacturer Profit 1080000
12000 0.28 15000 425100
14000 0.22 16000 394500
16000 0.18 17000 345000 Logistics Engineering & Supply Chain Design
18000 0.1 2
18000 295500
Logistics Engineering & Supply Chain Design
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System 2: Centralized system

Retailer Retailer Total Joint

Probability Probability
1 2 demand Probability
8000 0.11 8000 0.11 16000 0.0121
8000 0.11 10000 0.11 18000 0.0121
8000 0.11 12000 0.28 20000 0.0308
8000 0.11 14000 0.22 22000 0.0242
8000 0.11 16000 0.18 24000 0.0198
8000 0.11 18000 0.1 26000 0.011
10000 0.11 8000 0.11 18000 0.0121
10000 0.11 10000 0.11 20000 0.0121
10000 0.11 12000 0.28 22000 0.0308
10000 0.11 14000 0.22 24000 0.0242
10000 0.11 16000 0.18 26000 0.0198
10000 0.11 18000 0.1 28000 0.011
12000 0.28 8000 0.11 20000 0.0308 Retailer Retailer Total Joint
Case Demand Sum of Joint Probability Probability Probability
12000 0.28 10000 0.11 22000 0.0308 1 2 demand Probability
12000 10.28 16000
12000 0.28 0.0121
24000 0.0784 16000 0.18 10000 0.11 26000 0.0198
12000 20.28 18000
14000 0.22 0.0242
26000 0.0616 16000 0.18 12000 0.28 28000 0.0504
12000 30.28 20000
16000 0.18 0.0737
28000 0.0504 16000 0.18 14000 0.22 30000 0.0396
12000 40.28 22000
18000 0.1 0.11
30000 0.028 16000 0.18 16000 0.18 32000 0.0324
14000 50.22 24000
8000 0.11 0.1664
22000 0.0242 16000 0.18 18000 0.1 34000 0.018
14000 60.22 26000
10000 0.11 0.1848
24000 0.0242 18000 0.1 8000 0.11 26000 0.011
14000 70.22 28000
12000 0.28 0.1712
26000 0.0616 18000 0.1 10000 0.11 28000 0.011
14000 80.22 30000
14000 0.22 0.1352
28000 0.0484 18000 0.1 12000 0.28 30000 0.028
14000 0.22 16000 0.18 30000 0.0396 18000 0.1 14000 0.22 32000 0.022
18000 0.1 Logistics
16000 Engineering
0.18 & Supply Chain
34000 Design
0.018 4
14000 0.22 18000 0.1 32000 0.022
16000 0.18 8000 0.11 24000 0.0198 18000 0.1 18000 0.1 36000 0.01
 Optimal Q (for 2 retailers) 26000
Total Retailer Profit (2 retailers) 1009392
Manufacturer Profit 1170000
9 32000 0.0764
10 34000 0.036
11 36000 0.01

Expected Profit of 2 Expected Profit of 2 Expected Profit of 2

Q Q Q
Retailers Retailers Retailers
1000 45000 13000 585000 25000 1004964
2000 90000 14000 630000 26000 1009392
3000 135000 15000 675000 27000 994416
4000 180000 16000 720000 28000 979440
5000 225000 17000 763729.5 29000 946488
6000 270000 18000 807459 30000 913536
7000 315000 19000 848647.5 31000 866388
8000 360000 20000 889836 32000 819240
9000 405000 21000 923286 33000 764070
10000 450000 22000 956736 34000 708900
11000 495000 23000 978636 35000 649950
12000 540000 24000 1000536 36000 591000

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Result comparision:

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   Decentralized system Centralized system
Total Retailer Profit
941400 1009392
(2 retailers)
Manufacturer Profit 1080000 1170000
Entire Supply Chain Profit 2021400 2179392

It can be seen from the table that Centralized system increases the profit for entire supply chain. However, note that this result does
not consider cost of losing customers.

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