Optimal Purchasing Options, High-Fare Reservations, Global Supply Chain Management Simulation

Purchasing Options for Sunglasses

Task:

Land’s End purchases sunglasses each year from a small manufacturing company. This company offers Land’s End two purchasing options:
Option 1: The manufacturer sells each pair of sunglasses to Land’s End at $65 and agrees to credit Land’s End $53 for each unit that is returned to the manufacturer at the end of the season (because those units did not sell). Since styles change each year, there is essentially no value in the returned merchandise. 
Option 2: The manufacturer offers a price of $55 for each unit, but returns are no longer accepted. In this case, Land’s End gives away any unsold units at the end of the season.
This season’s demand forecast for this model is normally distributed with a mean of 200 units and a standard deviation of 75 units. Land’s End will sell those sunglasses for $100 each. 

a)How much should Land’s End buy if they chose option 1?

b)How much should Land’s End buy if they chose option 2?

c)What is the expected number of sunglasses that Land’s End would return to the manufacturer if it chose option 1? (Round to the nearest integer.)

d)Which option should Land’s End choose (based on profit)?

e)Suppose now that the standard deviation of demand was actually larger, equal to 125 units. Which would be the optimal option to choose in this case (based on profit)?

f)Explain how and why demand variability may affect the choice of option for Land’s End.

Consider an airline that uses a plane with 100 seats. It only offers economy class, but it has two different fare classes. Those passengers that purchase their ticket more than a week in advance of departure pay $80 for a seat. Passengers purchasing a ticket within one week of departure pay $400. Assume that demand for the low-fare tickets is very large, so that if there is a seat available, there will always be a low-fare passenger willing to buy it (as long as they buy the ticket more than a week in advance). On the other hand, based on history, the airline estimates that demand for high-fare tickets has a Normal distribution with mean 50 and standard deviation 20. If the airline sells too many of the low-fare tickets, then it may miss selling tickets to the more profitable high-fare passengers. 

Using the newsvendor model, compute the number of seats that the airline should reserve for high-fare passengers. (Round up to the nearest integer if needed.)

3.Global Supply Chain Management Simulation
The Global Supply Chain Management Simulation will allow you to design and manage the operations of a cell phone manufacturer over the course of four years. You will be placed in charge of the introduction of two cell phone models, and will be required to design the product line, forecast demand, choose a set of suppliers with different cost and lead-time characteristics, make production decisions, and allocate production among your chosen suppliers. After completing the product and supply chain design phase, you will observe actual monthly demand and will have opportunities to respond to unexpected events. At the end of each year, the company’s board of directors will evaluate your performance and your annual profits are computed. More details and instructions for running the simulation are included in the course pack.
You will need between 4 and 8 hours to run the simulation. You will need the ability to listen to audio. You have received an email with a username to access the simulation. To log in to the simulation, follow the link provided in the e-mail and enter the username and password provided to you.
You must run the simulation through the entire 4-year period. Only the first scores that you obtain for each year are recorded, no matter how often you play through the years. More details on the simulation can be found in the course pack.

a)Part of your grade is based on the profit and vote performance. Please enter your results below. (8 points)

Profit Year 1 =         Votes Year 1 = 
Profit Year 2 =         Votes Year 2 = 
Profit Year 3 =         Votes Year 3 = 
Profit Year 4 =         Votes Year 4 = 

b)What factors do you think, within the setting of the game, are most important when choosing the combination of product options? Explain your answer. (You may answer this question independently of your actual choices during the game.)

c)How did you decide which supplier(s) to use? Explain your answer.

d)How did you determine the production quantities? (If you used the newsvendor model, please elaborate on the parameters you used for the model, i.e., demand distribution, overage and underage costs.)