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SU Champion And Teddy Bower Financial Case Studies

SU Champion And Teddy Bower Financial Case Studies


Champion Case

Champion Current Plan: Champion manufactures winter fleece jackets for sale in the United States. Demand for jackets during the season is normally distributed, with a mean of 20,000 and a standard deviation of 10,000. Each jacket sells for $60 and costs $30 to produce. Any leftover jackets at the end of the season are sold for $25 at the year-end clearance sale. Holding a jacket until the year-end sale adds another $5 to the jacket’s cost.

a) What is the optimal cycle service level?

b) What is the optimal order size?

c) What is Champion’s expected profit?

New Plan: A recent recruit has suggested shipping leftover jackets to South America for sale in the winter there rather than running a clearance. Each jacket will fetch a price of $35 in South America, and all jackets sent there are likely to sell. Shipping costs add $5 to the cost of any jacket sold in South America. Again, Holding a jacket until the year-end sale adds another $5 to the jacket’s cost.

d) What is the optimal cycle service level?

e) What is the optimal order size?

f) What is Champion’s expected profit?

Teddy Bower

Teddy Bower is an outdoor clothing and accessories chain that purchases a line of parkas at $10 each from its Asian supplier, Teddy Sports. Unfortunately, at the time of order placement, demand is still uncertain. Teddy Bower forecasts that its demand is normally distributed with a mean of 2,100 and a standard deviation of 1,200. Teddy Bower sells these parkas at $22 each. Unsold parkas have little salvage value; Teddy Bower simply gives them away to charity.

(a) What is the probability this parka turns out to be a “dog”? Defined as a product that sells less than half of the forecast?
Hint: Find the probability that demand < 1050 using NORM.DIST with a mean = 2100 and standard deviation = 1200.

(b) How many parkas should Teddy Bower buy from Teddy Sports to maximize expected profit?

(c) If Teddy Bower wishes to ensure a 98.5 % in-stock probability, how many parkas should it order?

(d) Assume Teddy Bower orders 3000 units. Evaluate its expected profit.

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