Inventory Problems

Question 1: A retail store stocks fashion clothing for different seasons. Each selling
season lasts for 6 weeks and a single procurement order has to be placed with the
manufacturer two months before the selling seasons starts. For the winter season a
branded women’s jacket is priced at Rs. 2100. The retailer buys the jacket from the
manufacturer at Rs. 1500. The retailer estimates the average demand for this jacket to be
100 units. However, the actual demand can vary considerably and he assumes it is
Normally distributed with mean 100 units and standard deviation of 15 units. Any
leftover inventory is sold to a discount store for Rs. 1275 per unit. How many jackets
should the retailer order? What is the retailer’s expected sales (in units)? What is the
retailer’s expected profit?

Question 2: You may have to use Excel spreadsheet for this problem
The same retail store sells designer T-shirts (during summer season) made by a well-
known branded manufacturer CottonSoft. The retailer buys the T-shirt at Rs. 351 per unit
and prices it at Rs. 600. At the end of the summer season the T-shirts are sold to discount
stores at Rs. 250 per unit. The demand for this product is Normally distributed with mean
900 and standard deviation of 122 T-shirts. How many T-shirts should the retailer
procure and what is expected number of T-shirts that will be sold to discount stores. What
is the expected profit?

Question 2b: During the summer season the retailer sells three other brands of T-shirts (in
addition to CottonSoft). The parameter values for the three brands are given in the Table
below.

Haifa Sunny Inexp

Retail Price 400 423 61
Manufacturer’s 150 280 48
Price
Salvage Price 125 151 20
Mean Demand 800 1200 2300
Standard Deviation 200 170 200

The retailer has decided to stock only 4000 units. How many of each of the four brands
should the retailer procure? What would be the expected lost sales for each the stocked
items.

Question 3: (Refer to question 1): A women’s designer jacket comes in four different
colours. The cost/revenue data remains the same as in Question 1. The demand
distribution for the four colours is different though. Black is N(150, 50); Blue is N(75,
15); Pink N(120, 50); Jade N(100,15). The total shelf space for this brand is 400 units.
How many of each colour should the retailer procure? Note: N(a,b) means Normally
distributed with mean a and standard deviation of b units. What is the expected sale for
each of the four variants?