Case
Teaching Notes
Supplementary Resources
Abstract
The purpose of this case is an introduction to students who are interested in the area of operations management, particularly in inventory control, pertinent to lot sizing in a stochastic environment and the effect of flexible contracting vis-à-vis minimum Order Quantity Commitment (OQC) and expedited-delivery options. We present an example where a small start-up e-commerce company with limited budget explores a specific segment of market, namely electric appliances. The company provides online sales for only one season, and it procures multiple products at the beginning of the season. The goal of the company is to select among various products and allocate its limited budget to maximize the company's profit.
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved
Resources
Teaching Note Calculations
# | Product | Sales Price ($) | Purchase Cost ($) | Salvage Value ($) | Cost of Lost Sale ($) | Expedited Delivery Cost ($) | Ma.x Exp-Del Quantity | Min OQC | Penalty Cost ($) | Demand Distribution | Optimal Inventory Level | Optimal Order Quantity | Profit | Profit/ Order Quantity | Total Purchasing Cost | Cumulative Purchasing Cost |
17 | Vacuum Cleaner A | 799.99 | 669.99 | 304.00 | 65.00 | 120 | 500 | 500 | 20,000 | N(500, 250) | 339 | 339 | 18,125.00 | 53.47 | 227,126.95 | 227,126.95 |
11 | Juicer | 429.99 | 386.99 | 163.40 | 21.50 | 61 | 1,000 | 1,750 | 80,000 | N(2500, 500) | 2,107 | 2,107 | 65,901.00 | 31.28 | 815,390.04 | 1,042,516.99 |
1 | Blender A | 334.99 | 301.49 | 127.30 | 16.75 | 20 | 500 | 900 | 28,000 | N(1200, 400) | 809 | 900 | 21,495.00 | 23.88 | 271,341.90 | 1,313,858.89 |
9 | Stand Mixer B | 529.99 | 476.99 | 201.40 | 26.50 | 100 | 250 | 600 | 5,000 | N(700, 200) | 566 | 566 | 12,820.00 | 22.65 | 269,976.91 | 1,583,835.79 |
15 | Slow Cooker A | 229.99 | 198.86 | 87.40 | 15.57 | 35 | 750 | 800 | 20,000 | N(1000, 300) | 790 | 800 | 17,419.00 | 21.77 | 159,088.00 | 1,742,923.79 |
4 | Coffee Maker A | 174.99 | 147.49 | 66.50 | 13.75 | 23 | 1,000 | 2,000 | 40,000 | N(2500, 700) | 2,044 | 2,044 | 44,099.00 | 21.57 | 301,471.60 | 2,044,395.40 |
8 | Stand Mixer A | 349.99 | 314.99 | 133.00 | 17.50 | 45 | 200 | 300 | 6,000 | N(500, 150) | 378 | 378 | 7,778.80 | 20.58 | 119,066.60 | 2,163,461.99 |
16 | Slow Cooker B | 179.99 | 151.99 | 68.40 | 14.00 | 20 | 1,500 | 2,000 | 10,000 | N(2500, 1200) | 1,700 | 1,700 | 27,883.00 | 16.40 | 258,384.70 | 2,421,846.69 |
12 | Deep Fryer | 99.99 | 80.99 | 38.00 | 9.50 | 10 | 800 | 1,000 | 4,000 | N(1200, 600) | 834 | 834 | 11,270.00 | 13.51 | 67,546.49 | 2,489,393.19 |
5 | Coffee Maker B | 149.99 | 134.99 | 57.00 | 7.50 | 15 | 1,500 | 2,000 | 24,000 | N(3000, 500) | 2,509 | 2,509 | 33,596.00 | 13.39 | 338,692.42 | 2,828,085.61 |
7 | Toaster B | 199.99 | 179.99 | 76.00 | 10.00 | 30 | 450 | 800 | 16,000 | N(1000, 300) | 772 | 800 | 7,903.50 | 9.88 | 143,992.80 | 2,972,078.41 |
14 | Ice Cream Maker | 129.99 | 116.99 | 49.40 | 6.50 | 20 | 250 | 250 | 3,000 | N(500, 100) | 425 | 425 | 3,851.90 | 9.06 | 49,721.18 | 3,021,799.58 |
13 | Waffle Maker | 139.99 | 125.99 | 53.20 | 7.00 | 20 | 200 | 800 | 11,000 | N(1000, 300) | 770 | 800 | 5,658.30 | 7.07 | 100,792.80 | 3,122,592.38 |
2 | Blender B | 64.99 | 58.49 | 24.70 | 3.25 | 7 | 1,500 | 1,700 | 10,000 | N(2500, 700) | 1,857 | 1,857 | 8,868.10 | 4.78 | 108,617.79 | 3,231,210.17 |
18 | Vacuum Cleaner B | 109.99 | 98.99 | 41.80 | 5.50 | 15 | 1,000 | 1,500 | 16,000 | N(1800, 600) | 1,320 | 1,500 | 6,609.60 | 4.41 | 148,486.50 | 3,379,696.67 |
6 | Toaster A | 59.99 | 53.99 | 22.80 | 3.00 | 8 | 3,000 | 3,000 | 20,000 | N(4500, 1000) | 3,674 | 3,674 | 15,888.00 | 4.32 | 198,362.93 | 3,578,059.60 |
10 | Microwave | 119.99 | 107.99 | 45.60 | 6.00 | 15 | 4,000 | 4,500 | 50,000 | N(6000, 2500) | 3,917 | 4,500 | 15,065.00 | 3.35 | 485,959.50 | 4,064,019.10 |
3 | Rice Cooker | 39.99 | 35.99 | 15.20 | 2.00 | 5 | 100 | 400 | 1,400 | N(500, 100) | 419 | 419 | 1,259.30 | 3.01 | 15,080.23 | 4,079,099.33 |
Supplier A | ||||||||||||||
# | Product | Sales Price ($) | Purchase Cost ($) | Salvage Value ($) | Cost of Lost Sale ($) | Expedited Delivery Cost ($) | Max. Exp-Del Quantity | Min. OQC | Penalty Cost ($) | Demand Distribution | Optimal Inventory Level | Optimal Order Quantity | Profit | Profit/Order Quantity |
17 | Vacuum Cleaner A | 799.99 | 669.99 | 304.00 | 65.00 | 120 | 500 | 500 | 20,000 | N(500, 250) | 339 | 339 | 18,125 | 53.47 |
1 | Blender A | 334.99 | 301.49 | 127.30 | 16.75 | 20 | 500 | 900 | 28,000 | N(1200, 400) | 809 | 900 | 21,495 | 23.88 |
15 | Slow Cooker A | 229.99 | 198.86 | 87.40 | 15.57 | 35 | 750 | 800 | 20,000 | N(1000, 300) | 790 | 800 | 17,419 | 21.77 |
4 | Coffee Maker A | 174.99 | 147.49 | 66.50 | 13.75 | 23 | 1,000 | 2,000 | 40,000 | N(2500, 700) | 2,044 | 2,044 | 44,099 | 21.57 |
8 | Stand Mixer A | 349.99 | 314.99 | 133.00 | 17.50 | 45 | 200 | 300 | 6,000 | N(500, 150) | 378 | 378 | 7,779 | 20.58 |
6 | Toaster A | 59.99 | 53.99 | 22.80 | 3.00 | 8 | 3,000 | 3,000 | 20,000 | N(4500, 1000) | 3,674 | 3,674 | 15,888 | 4.32 |
Supplier B | ||||||||||||||
# | Product | Sales Price ($) | Purchase Cost ($) | Salvage Value ($) | Cost of Lost Sale ($) | Expedited Delivery Cost ($) | Max. Exp-Del Quantity | Min. OQC | Penalty Cost ($) | Demand Distribution | Optimal Inventory Level | Optimal Order Quantity | Profit | Profit/ Order Quantity |
18 | Vacuum Cleaner B | 110 | 98.99 | 41.80 | 5.50 | 15 | 1,000 | 1,500 | 16,000 | N(1800, 600) | 1,320 | 1,500 | 6,610 | 4.41 |
2 | Blender B | 64.99 | 58.49 | 24.70 | 3.25 | 7 | 1,500 | 1,700 | 10,000 | N(2500, 700) | 1,857 | 1,857 | 8,868 | 4.78 |
16 | Slow Cooker B | 180 | 151.99 | 68.40 | 14.00 | 20 | 1,500 | 2,000 | 10,000 | N(2500, 1200) | 1,700 | 1,700 | 27,883 | 16.40 |
5 | Coffee Maker B | 150 | 134.99 | 57.00 | 7.50 | 15 | 1,500 | 2,000 | 24,000 | N(3000, 500) | 2,509 | 2,509 | 33,596 | 13.39 |
9 | Stand Mixer B | 530 | 476.99 | 201.40 | 26.50 | 100 | 250 | 600 | 5,000 | N(700, 200) | 566 | 566 | 12,820 | 22.65 |
7 | Toaster B | 200 | 179.99 | 76.00 | 10.00 | 30 | 450 | 800 | 16,000 | N(1000, 300) | 772 | 800 | 7,904 | 9.88 |
Product | Supplier A: Profit/ Quantity | Supplier B: Profit/ Quantity | Supplier Selection |
Vacuum Cleaner | 53.47 | 4.41 | Supplier A |
Blender | 23.88 | 4.78 | Supplier A |
Slow Cooker | 21.77 | 16.40 | Supplier A |
Coffee Maker | 21.57 | 13.39 | Supplier A |
Stand Mixer | 20.58 | 22.65 | Supplier B |
Toaster | 4.32 | 9.88 | Supplier B |
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved