Operations Management MOPO14201

Session 6 Inventory Planning and Process Innovation

Group Assignment

Instructions

Think about the class discussions, the pastry example, the newsvendor
problem and the case of M&S and Zara. Consider the following:

• Maximum one page, excluding calculations.

• You don’t have to use any particular software to write down the
calculations.

• As long as the report is easily readable, a handwritten and scanned

version is accepted.

• One submission per team.

• Submit your reports via the course portal.

• The deadline for submitting the assignment is by the end of

Wednesday, April 20th.
Marks & Spencer and Zara: Process Competition in the Textile
Apparel Industry [INSEAD 602-010-1]
Question 1.

What role does “postponement” in design play in Zara’s business process?

Question 2.

Why do you think it is so difficult for M&S to play the “fashion” game?

The Newsvendor Problem

Question 3.

Imagine you are organizing Bastille Day festival. You sell 3 different styles
or designs of posters during the festival. You need to print your products
before the festival.

Each poster sells for €10 and costs €5 to print. You have to throw away all
unsold posters after the festival with no salvage value. The questions is how
many of each poster are you going to print?

The problem can be written as

max 𝑝 min{𝐷1 , 𝑞1 } − 𝑐𝑞1 + 𝑝 min{𝐷2 , 𝑞2 } − 𝑐𝑞2 + 𝑝 min{𝐷3 , 𝑞3 } − 𝑐𝑞3
Where 𝐷1 , 𝐷2 , 𝐷3 are random variables capturing demand for poster designs
1 to 3 respectively and 𝑞1 , 𝑞2 , 𝑞3 are order quantities for poster designs 1 to
3 respectively.

We know that we can use the following formulation to find the optimal order
quantity for every poster design in this problem:
𝑝−𝑐
𝐹(𝑞 ∗ ) =
𝑝
Where 𝐹 is the Cumulative Distribution Function (CDF) of demand. This
means that the optimal order quantity for every poster design depends only
on the selling price of that poster, the cost of that poster, and distribution of
demand for that poster.

If a random variable 𝑋 follows a normal distribution with mean 𝜇 and

standard deviation of 𝜎, we show that by 𝑋 ∼ 𝑁𝑜𝑟𝑚𝑎𝑙(𝜇, 𝜎 2 )

Suppose for every design, we have:

𝐷1 ∼ 𝑁𝑜𝑟𝑚𝑎𝑙(80,1600)
𝐷2 ∼ 𝑁𝑜𝑟𝑚𝑎𝑙(50,900)
𝐷3 ∼ 𝑁𝑜𝑟𝑚𝑎𝑙(20,225)
How many of each poster design are you going to print to maximize your
total profit?