Club Francais du Vin case summary

Copyright, Cachon and Terwiesch

Slide 1

Optimistic forecasts

Their forecasts tend

to be too high 31
out of the 45
forecasts exceed
actual demand
(31/45 - 69%). Put
another way, most
of the observations
are in the lower right
triangle.

Copyright, Cachon and Terwiesch

Slide 2

Critical ratio evaluation for three price points and two wine
types

The overage cost is the

consequence of over
ordering one bottle, which is
the holding cost on the
capital tied to the product,
the storage cost, the
shipping cost (because it is
eventually shipped) plus the
gross loss on the discounted
sale (which in this case is
actually negative because
there is a gross profit on
discounted sales)

The critical ratio depends

significantly on the wines
price. More conservative
order quantities are justified
for the low priced wines.

Copyright, Cachon and Terwiesch

Slide 3

Pick Q with the A/F ratio distribution

Evaluate the A/F ratios for the n items and sort them in ascending order.
Rank each item from 1 to n.
Evaluate the distribution function for each item, F(A/F) = items rank / n
Suppose the critical ratio is 0.6038, which implies an A/F of 0.93
Use the round up rule because F(0.91) = 0.6000 and F(0.92) = 0.6222
Suppose the forecast is 4000 bottles.
Order quantity = A/F x Forecast = 0.93 x 4000 = 3720
A sample of the A/F
empirical distribution
function table

Copyright, Cachon and Terwiesch

Slide 4

A sample of the order quantities

Some wines are not profitable, so maybe they should not even be ordered?
Due to over-forecasting and low critical ratios, the total recommended buy
(about 64000 bottles) is much lower than their total forecast (about 93000
bottles)
Order quantities vary considerably relative to the forecasts because of
variation in prices.

Appellation

Color

BOURGOGNE ALIGOTE
VDP du Comt Tolosan
VDP des Cteaux de L'Ardche
ALOXE CORTON
PESSAC LEOGNAN
MADIRAN
COTEAUX DU LYONNAIS
VDP des Cteaux de L'Ardche
CARTON PANACHE
CARTON PANACHE
CARTON PANACHE

Total

Blanc
Blanc
Ros
Rouge
Rouge
Rouge
Rouge
Rouge

Copyright, Cachon and Terwiesch

Forecast
1100
2300
2900
1200
1300
5000
3000
3500
1600
3000
6000
93050
Slide 5

Price

Co

Cu

Cu/(Co+
Cu)

A/F

Order
quantity

7.20
3.30
3.30
21.90
18.90
9.50
5.35
3.25
10.90
9.47
5.95

2.24
2.44
2.44
0.26
0.64
1.81
2.33
2.59
2.06
2.13
2.30

1.80
-0.15
-0.15
9.15
7.65
2.95
0.88
-0.18
3.65
2.94
1.18

0.446
-0.066
-0.066
0.972
0.923
0.619
0.273
-0.072
0.640
0.580
0.338

0.766
0.000
0.000
2.343
1.382
0.927
0.600
0.000
0.928
0.910
0.650

843
0
0
2812
1797
4633
1800
0
1485
2729
3900
63958