Benetton is studying two alternative contracts with a retailer for a seasonal product, Revenue-Sharing contract and Quantity Flexibility contract. Attributes and terms of the two contracts are presented below. Profit Sharing Contract: Benetton production cost is $20, and it charges the retailer a low wholesale price of $25. The retailer prices to the customers at $55 per unit. The retailer forecasts demand to be normally distributed, with a mean of 4,000 and standard deviation of 1,600. Any unsold product are discounted to $15, and all sell at this price. The retailer will share 30% of the revenue with Bennetton, keeping 70% for itself. Quantity Flexibility Contract: If the retailer orders O units, Benneton is willing to provide up to another 35% if needed. Benetton's production cost is $20, and it charges the retailer a wholesale price of $36. The retailer prices to the customers at $55 per unit. Any unsold units can be sold by the retailer at a salvage value of $25. Bennetton can salvage only $10 per unit for its leftover inventory. The retailer forecasts demand to be normally distributed, with a mean of 4,000 and standard deviation of 1,600. For detail analysis of the two alternative contracts, management need answers to a set of questions for each contract A - Profit Sharing Contract: 1 - How many units should the retailer order? 2 - What is the optimal cycle service level? 3 - What is the expected quantity sold by the retailer? 4 - What is the expected profit for the retailer? 5 - What is the expected profit for Benetton? 6 - What is the expected profit for the supply chain? B - Quantity Flexibility Contract: 1 - How many units O should the retailer order? 2 - What is the expected quantity purchased by the retailer (recall that the retailer can increase the order by up to 35% after observing demand)? 3 - What is the expected quantity sold by the retailer? 4 - What is the expected profit for the retailer? 5 - What is the expected profit for Benetton? 6 - What is the expected profit for the supply chain? C - Compare the Two Alternative Contracts: 1 - Which contract does generate a higher expected profit for the retailer? 2 - Which contract does generate a higher expected profit for Benetton? 3 - Which contract does generate a higher expected profit for the supply chain?

Benetton is studying two alternative contracts with a retailer for a seasonal product, Revenue-Sharing contract and Quantity Flexibility contract. Attributes and terms of the two contracts are presented below. Profit Sharing Contract: Benetton production cost is $20, and it charges the retailer a low wholesale price of $25. The retailer prices to the customers at $55 per unit. The retailer forecasts demand to be normally distributed, with a mean of 4,000 and standard deviation of 1,600. Any unsold product are discounted to $15, and all sell at this price. The retailer will share 30% of the revenue with Bennetton, keeping 70% for itself. Quantity Flexibility Contract: If the retailer orders O units, Benneton is willing to provide up to another 35% if needed. Benetton's production cost is $20, and it charges the retailer a wholesale price of $36. The retailer prices to the customers at $55 per unit. Any unsold units can be sold by the retailer at a salvage value of $25. Bennetton can salvage only $10 per unit for its leftover inventory. The retailer forecasts demand to be normally distributed, with a mean of 4,000 and standard deviation of 1,600. For detail analysis of the two alternative contracts, management need answers to a set of questions for each contract A - Profit Sharing Contract: 1 - How many units should the retailer order? 2 - What is the optimal cycle service level? 3 - What is the expected quantity sold by the retailer? 4 - What is the expected profit for the retailer? 5 - What is the expected profit for Benetton? 6 - What is the expected profit for the supply chain? B - Quantity Flexibility Contract: 1 - How many units O should the retailer order? 2 - What is the expected quantity purchased by the retailer (recall that the retailer can increase the order by up to 35% after observing demand)? 3 - What is the expected quantity sold by the retailer? 4 - What is the expected profit for the retailer? 5 - What is the expected profit for Benetton? 6 - What is the expected profit for the supply chain? C - Compare the Two Alternative Contracts: 1 - Which contract does generate a higher expected profit for the retailer? 2 - Which contract does generate a higher expected profit for Benetton? 3 - Which contract does generate a higher expected profit for the supply chain?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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