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HOMEWORK – SUPPLY CHAIN DESIGN

CHAPTER 6: SUPPLY CONTRACTS

Question 1: (40 points)

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. (10 points)
Supply chain’s marginal profit = $125 - $55 = $70

(b) Calculate the supply chain’s marginal loss. (10 points)

Supply chain’s marginal loss = $55 - $20 = $35

(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: (20 points)

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)

Question 2: (60 points)

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. (10 points)
(b) Calculate the manufacturer’s marginal profit. (10 points)

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(c) Provided that the order policy of the retailer is 2,200 units, then what is the expected
profit for the retailer? (20 points)
(d) Then, what is the expected profit for the manufacturer if the retailer concludes an
order of 2,200 units? (10 points)
(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? (10 points)