Professional Documents
Culture Documents
MANAGEMENT
WILLS LIFESTYLE
CASE
Submitted By:
GROUP 2 (SCM 2)
KEY ASSUMPTIONS
1. We have applied the Newsvendor model to calculate the optimal order quantity. Further, we
have used related concepts, including expected lost sales and expected left over inventory for
other calculations
2. The lot size is taken to be continuous and not in pre-specified batches, after fulfilling the
minimum requirement. For example, a minimum lot size of 2,000 implies that all orders more
than 2,000 can be fulfilled.
3. For all analysis, the margin associated with the internal production is taken to be 30% (of
respective cost) per style and the average cost of overstocking is taken to be 10% (of
respective cost).
1. What would be the order size for each of the style? Assume Wills Lifestyle will place orders for
all style (it cannot be zero for some style).
To find the optimal order size for each of the style, the Newsvendor model is applied.
Formulae:
Co=10% of material cost
Cu=Contribution
P(D<Q)=CuCo+Cu
Q1*= +z(P)*
Q*=Max(Q1*,2000)
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Calculations:
2. What happens if the supplier only offers a total capacity of 25,000 units but there is no minimum
lot size per style?
Given no minimum lot size, the capacity allocation was done using the Solver in Excel.
Optimization conditions:
Formulae:
L(z)=NORMDIST(z,0,1,0)-z*(1-NORMDIST(z))
Answer:
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2. Now consider the process post-2003. LRBD divides the sales period per season (for example,
summer selling season) into six sub-periods and arranges for multiple replenishments after bringing
in an initial order quantity. Assume that each sub-period average about one-sixth of the seasons
demand.
a. What initial order quantity (for each style should LRBD place (and in successive order
periods)? The minimum lot size is 800 units per style.
For this question, the mean demand for each style is divided by 6 and the standard deviation by
square root of 6, as we assume demand is equally split across the 6 seasons.
For the first period, the calculation for the optimal ordering quantity, Q*, is taken as the maximum of
the calculated amount (using the Newsvendor model) and the minimum lot size (800 units).
For the subsequent periods, the left over inventory is compared with the optimal order quantity
(derived using newsvendor model). In cases where the optimal quantity is higher than leftover
inventory, we will place an order for min 800 units. For cases where leftover inventory is higher than
optimal quantity, we will not order anything in this season and carryover the excess to the next
season.
Formulae:
Co=10% of material cost
Cu=Contribuion
P(D<Q)=Cu/(Co+Cu)
Q1*= +z(P)*
Q*=Max(Q1*,800)
z=Q*-
Expected Lost Sales (ELS)= *L(z)
Calculations:
800.0
C Stretch 130.77 392.31 75% 347.74 800.00
800.0
Tue Purples 153.85 461.54 75% 467.19 800.00
1179.0
Pristine CD 115.38 346.15 75% 1,178.26 800.00
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Styles Q1 Q2 Q3 Q4 Q5 Q6
1191.0 800.0 800.0 800.0 800.0 800.0
Sun Orange
1219.0 800.0 800.0 800.0 800.0 800.0
SS Linen
800.0 0.0 800.0 0.0 800.0 0.0
Sunray Stripe
800.0 0.0 800.0 0.0 800.0 0.0
Regent Bias
881.0 800.0 800.0 800.0 800.0 800.0
Italian Dobby
800.0 0.0 800.0 0.0 800.0 0.0
V Seamed
800.0 800.0 800.0 800.0 800.0 800.0
Delicate Dobby
800.0 0.0 800.0 0.0 800.0 0.0
C Stretch
800.0 0.0 800.0 0.0 800.0 0.0
Tue Purples
1179.0 800.0 800.0 800.0 800.0 800.0
Pristine CD
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