Increasing Supply Chain Profitability with Postponement

Input
Mean demand for each color= 1000
Standard Deviation of Demand = 500
Option 1 Cost per unit, c = $ 20.00
Option 2 Cost per unit, c = $ 22.00
Retail price, p = $ 50.00
Salvage Value, s = $ 10.00
Product Colors/Styles 4
Option 1 Option 2
Cost of overstocking per unit, Co = $ 10.00 Aggregate mean demand
Cost of understocking per unit, Cu = $ 30.00 Standard Deviation of Dema
Expected overstock units (eqn 12.4) = 412 Cost of overstocking per unit
Expected understock units (eqn 12.5) = 75 Cost of understocking per un
Optimal Order quanity, O* (eqn 12.2) = 1,337 Expected overstock units (eq
Optimal cycle service level, CSL* (eqn 12. 0.75 Expected understock units (e
Expected Profit (eqn 12.3) = $ 23,644 Total Expected Cost of Overs
Total Expected Cost of Overstock Units $ 16,473 Total Expected Cost of Unde
Total Expected Cost of Understock Units $ 8,949 Optimal cycle service level, C
Total Order Quantity 5,349 Optimal Order quanity, O* (e
Total Expected Profit $ 94,578 Expected Profit (eqn 12.3)

Value Option 2 over Option

 ate mean demand 4,000
rd Deviation of Demand 1,000
overstocking per unit, Co = $ 12.00
understocking per unit, Cu = $ 28.00
ed overstock units (eqn 12.4) = 715
ed understock units (eqn 12.5) = 190
xpected Cost of Overstock Units $ 8,577.28
xpected Cost of Understock Units $ 5,330.43
l cycle service level, CSL* (eqn 12. 0.70
l Order quanity, O* (eqn 12.2) = 4,524
ted Profit (eqn 12.3) = $ 98,092

Option 2 over Option 1 $ 3,514

Increasing Supply Chain Profitability with Postponement
Input mean standard deviation
color 1 (Red) 3100 800
color 2 300 200
color 3 300 200
color 4 300 200
Option 1 Cost per unit, c = $ 20.00
Option 2 Cost per unit, c = $ 22.00
Retail price, p = $ 50.00
Salvage Value, s = $ 10.00
Product Colors/Styles 4
Option 1 Option 2
Cost of overstocking per unit, Co = $ 10.00 Aggregate mean demand
Cost of understocking per unit, Cu = $ 30.00 Standard Deviation of Deman
CSL* O* E(Profit) Cost of overstocking per unit,
color 1 0.75 3,640 $ 82,831 Cost of understocking per uni
color 2 0.75 435 $ 6,458 Expected overstock units (eq
color 3 0.75 435 $ 6,458 Expected understock units (e
color 4 0.75 435 $ 6,458 Optimal cycle service level, C
Total Production 4944 Optimal Order quanity, O* (eq
Total Expected Profit $ 102,205 Expected Profit (eqn 9.3) =
Value Option 2 over Option
 e mean demand 4,000
Deviation of Demand 872
verstocking per unit, Co = $ 12.00
nderstocking per unit, Cu = $ 28.00
d overstock units (eqn 9.4) = 623.12
d understock units (eqn 9.5) 166
cycle service level, CSL* (eq 0.70
Order quanity, O* (eqn 9.2) 4,457
d Profit (eqn 9.3) = 99,876
ption 2 over Option 1 $ (2,329)