Single Order in a Season from Low-Cost Supplier
Product
Sale
Price, p
Sourcing
cost, c
Net
salvage
value, s
Mean
Season
Demand, μ
SD of
Season
Demand, σ
Optimal
Service
Level
Optimal
Order
Size
Expected
Understock
Expected
Profit
Trendy 100$ 40$ 20$ 400 250 75.00% 568 205 37 17,644$
Basic 50$ 30$ 20$ 1000 200 66.67% 1086 130 44 17,818$
35,463$
Two Orders in a Season with lost sales in each cycle
Product Sale Price, p
Sourcing
cost, c
Net
salvage
value, s
Mean
Demand over
first cycle, μ1
SD of Demand
over first cycle,
σ1
Optimal
Service
Level
Optimal
Order Size
Expected
Overstock in
cycle 1
Expected
Understock
in cycle 1
Expected
Profit in cycle
1
Mean Demand
over second
cycle, μ2
SD of Demand
over second
cycle, σ2
Expected
quantity at start
of cycle 2
Expected order
size in cycle 2
Expected
Overstock in
cycle 2
Expected
Understock in
cycle 2
Expected
Profit in cycle
2
Total Profit
in Season
Trendy 100$ 42$ 20$ 200 177 72.50% 305 135.19 30.19 6,875$ 200 177 305.00 200.00 135.19 30.19 6,875$ 18,475$
Basic 50$ 32$ 20$ 500 141 61.67% 541 79.11 38.11 7,635$ 500 141 541.00 500.00 79.11 38.11 7,635$ 16,885$
35,360$
Responsiveness premium = 105%