Scenario 15.2 - The Hilltop
Gregory and his followers scavenge the countryside for anything of value and with minimal investment,make it ready to provide for any customer visiting their compound.Their average investment in a product is $3,and one popular product,body armor,is in high demand.Residents of The Kingdom and Alexandria in particular,are eager to procure The Hilltop's body armor for $65 and sell it to anyone left in the world at an average price of $650.The demand for the body armor is normally distributed,with a mean of 250 units and a standard deviation of 50.
-If Gregory and a single retailer - say Alexandria - act as a vertically integrated supply chain,what is the total supply chain expected profit if an optimal order quantity is placed?

Question

Quizplus · Accepted Answer

The optimal order quantity is the square root of (2*demand*ordering cost)/holding cost. In this case, the demand is 250 units, the ordering cost is $3, and the holding cost is $65. So, the optimal order quantity is sqrt(2*250*3)/65 = 10. The total supply chain expected profit is then (selling price - cost - ordering cost)*demand = (650 - 65 - 3)*250 = $161,312.

Scenario 15.2 - the Hilltop