Using the data from problem 1, assume that the distributor knows the true forecast, given in problem 1; but for this problem we assume that the manufacturer has a distorted forecast, as given below:
Quantity Probability
2200 5%
2300 6%
2400 10%
2500 17%
2600 30%
2700 17%
2800 12%
2900 3%
a) Suppose the manufacturer is make-to-order. Using your proposed contract in Problem 1(b)(ii), find the order quantity and expected profit of the distributor, and the expected profit of the manufacturer. Compare your answers with 1(b)(ii).
b) Suppose the manufacturer is make-to-stock. Using your proposed contract in Problem 1(c)(ii), find the production quantity and expected profit of the manufacturer, and the expected profit of the distributor. Compare your answers with 1(c)(ii).
c) If you were the distributor and you have the choice of sharing the true demand forecast or the inflated demand forecast with the manufacturer, what will you do in each case (make to order; make to stock)? Explain.