The Young Professional Dream Company's Stochastic Inventory Management Problem

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

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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

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