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Logistics Engineering & Supply Chain Design Homework 4: (Requirements: Explain Step-By-Step For Manual Calculation)

The document describes a homework question involving calculating profits and losses for supply chains under different demand scenarios. It provides cost and price details for fashion items and asks the student to: 1) Calculate marginal profits and losses for individual supply chain stages. 2) Determine total expected profits for the supply chains and stages given optimal production quantities and demand probabilities. 3) Identify the type of contract where the manufacturer reduces wholesale price if the retailer's order exceeds a certain amount.

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Duc Anh Tran
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86 views3 pages

Logistics Engineering & Supply Chain Design Homework 4: (Requirements: Explain Step-By-Step For Manual Calculation)

The document describes a homework question involving calculating profits and losses for supply chains under different demand scenarios. It provides cost and price details for fashion items and asks the student to: 1) Calculate marginal profits and losses for individual supply chain stages. 2) Determine total expected profits for the supply chains and stages given optimal production quantities and demand probabilities. 3) Identify the type of contract where the manufacturer reduces wholesale price if the retailer's order exceeds a certain amount.

Uploaded by

Duc Anh Tran
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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LOGISTICS ENGINEERING & SUPPLY CHAIN DESIGN

HOMEWORK 4
Question 1:
Consider a supply chain of a fashion item as below cost-benefit details:
F=$100,000 ; c=$55 ; w=$80 ; s=$20 ; p=$125.
a. Calculate the supply chain’s marginal profit.
b. Calculate the supply chain’s marginal loss.
c. Provided that the optimal policy is to produce 14,000 units, calculate the total expected
supply chain’s profit under this demand’s scenario:

Demand, Probability,
D (units) Prob
8,000 0.11
10,000 0.11
12,000 0.28
14,000 0.22
16,000 0.18
18,000 0.1
(Requirements: Explain step-by-step for manual calculation)
Answer:
(a) The supply chain’s marginal profit is:
Supply chain’s marginal profit = p - c = 125 – 55 = $70

(b) The supply chain’s marginal loss is:


Supply chain’s marginal loss = c – s = 55 – 20 = $35

(c) Provided that the optimal policy is to produce 14,000 units, the expected supply
chain’s profit is:
With D = 8,000:
Profit (D=8,000) = p*D – c*Q + s*(Q-D)
= 125*8,000 – 55*14,000 + 20*(14,000 – 8,000) = $350,000

With D = 10,000:
Profit (D=10,000) = p*D – c*Q + s*(Q-D)
= 125*10,000 – 55*14,000 + 20*(14,000 – 10,000) = $560,000

With D = 12,000:
Profit (D=12,000) = p*D – c*Q + s*(Q-D)
= 125*12,000 – 55*14,000 + 20*(14,000 – 12,000) = $770,000
With D = 14,000:
Profit (D=14,000) = p*D – c*Q = 125*14,000 – 55*14,000 = $980,000

With D = 16,000:
Profit (D=16,000) = p*Q – c*Q = 125*14,000 – 55*14,000 = $980,000

With D = 18,000:
Profit (D=16,000) = p*Q – c*Q = 125*14,000 – 55*14,000 = $980,000

Total expected profit of the supply chain = 350,000*0.11 + 560,000*0.11 + 770,000*0.28 +


980,000*0.22 + 980,000*0.18 + 980,000*0.10 – 100,000 = $705,700

Question 2:
Consider the following demand scenario for a 2-stage supply chain:
Demand Probability

2,000 26%

2,100 30%

2,200 29%

2,300 15%
Suppose the manufacturer produces at a cost of c=$20/unit, and sells to the retailer at w=$40/
unit. Then, the retailer sells to end users for p=$50/unit during season, they will sell unsold units
for s=$10/unit after season.
a. Calculate the retailer’s marginal profit and loss.
b. Calculate the manufacturer’s marginal profit.
c. Provided that the order policy of the retailer is 2,200 units, then what is the expected
profit for the retailer?
d. Then, what is the expected profit for the manufacturer if the retailer concludes an order of
2,200 units?
e. If the manufacturer reduces the wholesale price to the distributor to $35/ unit if the
retailer buys at least 2,100 units, what type of the contract is this?
c=$20 ; w=$40 ; p=$50 ; s=$10
Answer

a) The retailer’s marginal profit is:


Retailer’s marginal profit = p – w = 50 – 40 = $10
The retailer’s marginal loss is:
Retailer’s marginal loss = w – s = 40 – 10 = $30
Student Name: …
Student ID: …

b) The manufacturer’s marginal profit:


Manufacturer’s marginal profit = w – c = 40 – 20 = $20

c) If Q=2,200 units, the expected profit for the retailer is:


With D = 2,000:
Profit (D=2,000) = p*D – w*Q + s*(Q-D)
= 50*2,000 – 40*2,200 +10*(2,200 – 2,000) = $14,000

With D = 2,100:
Profit (D=2,100) = p*D – w*Q + s*(Q-D)
= 50*2,100 – 40*2,200 + 10*(2,200 – 2,100) = $18,000

With D = 2,200:
Profit (D=2,100) = p*D – w*Q
= 50*2,200 – 40*2,200 = $22,000

With D = 2,300:
Profit (D=2,100) = p*Q – w*Q
= 50*2,200 – 40*2,200 = $22,000

Total expected profit of the retailer


= 14,000*0.26 + 18,000*0.30 + 22,000*0.29 + 22,000*0.15 = $18,720

d) If Q=2,200 units, the expected profit for the manufacturer is:


Total expected profit of the manufacturer = (w-c)*Q = (40-20)*
2,200 = $44,000

e) If the manufacturer reduces the wholesale price to the distributor to $35/ unit if the
retailer buys at least 2,100 units, this type of the contract is: Typical contract

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