ABC Company stocks and ships to their retailers a product (KB456) each week. The Product KB456 costs $150 per unit and is sold to the retailers for $230 per unit. Units not sold during one week are held over and sold the next week at a cost of $15 per unit, charged on beginning inventory. The company also charges itself $12 per unit for any lost sales. The fixed cost for the operations is $2,000 per week. The company wants to maximize profits.
The demand for product KB456 follows a uniform distribution with a minimum of 150 units and a maximum of 200 units. The company is considering three possible order levels. These are170, 175, or 180 units per week. Beginning inventory is zero.
Project #1 – Format
Executive Summary
Problem
Recommendation
Risk
Next Steps
Model#1 – One Year
Model #2 – 30 (One Year) Summaries
Exhibits
Graphs
Statistical Summaries
Detail
Formulas
Baseline questions: What is Breakeven? What if Demand is 10% lower? What if Demand is 10% higher? What is Optimal Range Order Point? Which Order Point drives the least Lost Sales? Which Order Point drives the least “Carryover” Inventory? What if demand band narrowed by 10%?What is the least profit with the current demand level?
Impact on profit if order level drops by 10% What is your “Final” recommendation?