Supply Chain help
Consider the following demand scenario:
Quantity Probability
2,000 3%
2,100 8%
2,200 15%
2,300 30%
2,400 17%
2,500 12%
2,600 10%
2,700 5%
Suppose the manufacturer produces at a cost of $20/unit. The distributor sells to end customers for $50/unit during season and unsold units are sold for $10/unit after season.
b) Suppose the manufacturer is make-to-order (i.e., the distributor must order before it receives demand from end customers).
(i) Suppose the manufacturer sells to the distributor at $40/unit, how much should the distributor order? What is the expected profit for the manufacturer? What is the expected profit for distributor?
(ii) Find an option contract such that both the manufacturer and distributor enjoy a higher expected profit than (b)(i). What is the expected profit for the manufacturer and the distributor?
10) Using the data of Question 9, suppose the manufacturer has an inflated demand forecast as follow:
Quantity Probability
2,200 5%
2,300 6%
2,400 10%
2,500 17%
2,600 30%
2,700 17%
2,800 12%
2,900 3%
a. Suppose the manufacturer is make-to-order (timing of events as in (9)). Using your contract in Question 9(b) (ii), find the order quantity, and expected profits of the distributors and of the manufacturer. Compare your answers with 9(b) (ii).
c. If you are the distributors and you have the choice of revealing the true demand forecast or inflated demand forecast to the manufacturer, what will you do in each case? Explain.