Recall the Hastings Sportswear example in class, in which Hastings Sportswear orders skiwear items from its supplier Global-Fashion. The production cost at Global-Fashion is $35 a piece, and Global-Fashion offers the wholesale contract to Hastings Sportswear to sell its skiwear at $80 apiece. Hastings Sportswear sells to its customers at a selling price of $110 per item. Hastings Sportswear estimates that the demand for the skiwear item is normally distributed with mean 1017 and standard deviation of 194. In this problem, we discuss the influence of a quantity discount contract. Now, Global-Fashion considers to switch from the wholesale contract to an all-unit quantity discount of 10%, if Hastings Sportswear orders 1200 skiwear items or more (this means that if Hastings Sportswear orders 1200 or more, it will pay $72 for each skiwear item; not just those exceeding 1200).
First, try to build up your descriptive model for the all-unit quantity discount contract to show the following two measures: (i) Hastings Sportswearâs profit and (ii) Global-Fashionâs profit, for a given actual demand of 900 and a given quantity ordered by Hastings Sportswear of 1200 (if the descriptive model is built correctly, then Hastings Sportswearâs and Global-Fashionâs profit will be $17100 and $44400, respectively).
Now, input the random number to generate the actual demand and build up your simulation model (the expected profit estimation should be based on the average profit of 100000 simulation runs) to answer the following questions:
Question 1: Under the all-unit quantity discount contract, Hastings Sportswearâs optimal ordering quantity is with its expected/average profit of $.
Now, instead of offering all-unit quantity discount, Global-Fashion offers an incremental quantity discount of 25%, if Hastings Sportswear orders 920 skiwear items or more (e. g., if Hastings Sportswear orders 1000, then it will pay $80 apiece for the first 920 items and pay $60 apiece for the additional 80 items). Build up your simulation model (the expected profit estimation should be based on the average profit of 100000 simulation runs) and answer the following question:
Question 2: Under this incremental quantity discount contract, Hastings Sportswearâs optimal ordering quantity is with its expected/average profit of $.