Problem:
The Wine Cellar places orders for a popular Pinot Noir on a weekly basis. The weekly demand for this wine was found to approximately follow the probability distribution shown below. The Wine Cellar buys this wine at $10 per bottle and sells it for $16 per bottle. The inventory carrying cost is $0.50 per bottle per week, and the shortage cost is $1.00 per bottle. The Wine Cellar does not permit backlogs, so shortages incur a cost only in the week they occur and then are ignored
Demand.......Probability
15....................0.20
16....................0.25
17.....................0.4
18....................0.15
Total................1.00
a) Using an order size of 16 bottles per week, simulate this ordering system for one year (52 weeks) and determine the expected profit. (Please include your simulation spreadsheet with this exam).
b) In at most 3 sentences, explain how your simulation system may be used to determine the best order size for this store.