What is retailers optimal stocking quantity and what is the

Question

A fashion retailer sells a short life fashion product. Suppose that the retailer gets the product from the manufacturer at the wholesale price of $155, and sells the product at the retail selling price of $500. This retailer will sell the product in the store for 3 weeks only. And unsold quantity of this product will be salvaged at a price of $40. Suppose that the demand of this product for this three weeks selling season is estimated to be normally distributed with a mean of 100 and a variance of 900.

a) What is retailer's optimal stocking quantity? "What is the service level (also called fill rate) with this optimal stocking quantity?

b) Suppose that the manufacturer produces the product at a cost of $63. And the manufacturer and the retailer are managed by the same firm and behave like a whole supply chain, than what is the optimal product quantity for this supply chain?

c) Is the retailer's optimal stocking quantity equal to the supply chain's? If No 'what does it mean?

d) Explain why a return contract such as buy-back can successfully coordinate this supply chain. Find the buy-back price that can achieve coordination when the wholesale price is $155.

Answer 1

Question: A fashion retailer vends a short life fashion product. Assume that the retailer obtains the product from manufacturer at a wholesale price of $155, and vends the product at a retail selling price of $500. This retailer will vend the product in store for only 3 weeks. And unsold quantity of this product will be recovered at a price of $40. Assume that the demand of this product for this 3 weeks selling season is predicted to be normally distributed by means of a mean of 100 and a variance of 900. 1) Determine retailer's optimal stocking quantity? Determine the service level (as well termed fill rate) by this optimal stocking quantity? 2) Is the retailer's optimal stocking quantity equivalent to the supply chains? If No 'what does it signify’? 3) Describe why a return contract like buy-back can successfully coordinate the supply chain. Determine buy-back price which can accomplish coordination if the wholesale price is $155.