Handi Inc. Options Contract Management
Swaggyz2321
CM5.xlsxQ#1
| Zach Johns and Abigail Hunt |
100% efficient supply chain contracts imply that both the supply chain and the supplier supplying the firm with its raw materials are highly effective. The contract implies that the provider is in a relationship with the organization and provides the organization with raw materials and other supplies in a reliable, effective manner without wasting anything, and the quality of the supply is consistent with the standards upon which the contract is based.
Q#2
Buy-Back Contract is an operations management tool in which a manufacturer specifies a ……Buy-Back………………………….……..…. price and a …………..Resale………………….…….. price at which the retailer can return any unsold items at the end of the season. The buy-back contract results in an increase in the salvage value for the retailer, which induces the retailer to order a larger quantity. The manufacturer is willing to take on some of the cost of overstocking, because: ..........It enables the company to lower the possibility that they will have too much inventory and may have to sell it at a loss.… and ….....It helps the manufacturer to get a guaranteed amount of sales from the store, which can help them organize their operations and manufacturing more effectively.
Q#3
| Initial Price (Ci) | 15 | Expected Demand E(D) | 15000 | |||
| Exercise Price (Ce) | 45 | 𝛔D | 5000 | |||
| Expensive Price (Cexp) | 80 | |||||
| Cost of Overstocking (Co) | 15 | |||||
| Cost of Understocking (Cu) | 20 | Q | 7500 | |||
| P(D>=7500) | 0.93 | |||||
| Critical Ratio | 0.57 | P(D>7500) | 0.07
: b) Probability that the demand will exceed the order quantity at 7,500 options |
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| Q* | 15900
: a) Optimal order quantity to maximize profit |
z-score | 0.18 | |||
| z-score | 0.18 | L(z) | 0.4349 | |||
| L(z) | 0.3154 | Expected Lost Sales | 2175 | |||
| Expected Lost Sales | 1577 | Expected Sales | 12826 | |||
| Expected Sales | 13423 | |||||
| Total Initial Payment | $ 150,000 | |||||
| Total Exercise Payment | $ 577,148 | |||||
| Total Expensive Payment | $ 173,960 | |||||
| Total Procurement Cost | $ 901,108
: c) Total Procurement Cost equals the sum of the procurement cost for the number of options purchased, expected sales * excercise cost, and expected lost sales * expensive cost |
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: a) Optimal order quantity to maximize profit |
: b) Probability that the demand will exceed the order quantity at 7,500 options |
Standard Normal Loss Function Table,L( z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.0 0.3989 0.3940 0.3890 0.3841 0.3793 0.3744 0.3697 0.3649 0.3602 0.3556 0.1 0.3509 0.3464 0.3418 0.3373 0.3328 0.3284 0.3240 0.3197 0.3154 0.3111 0.2 0.3069 0.3027 0.2986 0.2944 0.2904 0.2863 0.2824 0.2784 0.2745 0.2706 0.3 0.2668 0.2630 0.2592 0.2555 0.2518 0.2481 0.2445 0.2409 0.2374 0.2339 0.4 0.2304 0.2270 0.2236 0.2203 0.2169 0.2137 0.2104 0.2072 0.2040 0.2009 0.5 0.1978 0.1947 0.1917 0.1887 0.1857 0.1828 0.1799 0.1771 0.1742 0.1714 0.6 0.1687 0.1659 0.1633 0.1606 0.1580 0.1554 0.1528 0.1503 0.1478 0.1453 0.7 0.1429 0.1405 0.1381 0.1358 0.1334 0.1312 0.1289 0.1267 0.1245 0.1223 0.8 0.1202 0.1181 0.1160 0.1140 0.1120 0.1100 0.1080 0.1061 0.1042 0.1023 0.9 0.1004 0.0986 0.0968 0.0950 0.0933 0.0916 0.0899 0.0882 0.0865 0.0849 1.0 0.0833 0.0817 0.0802 0.0787 0.0772 0.0757 0.0742 0.0728 0.0714 0.0700
L(z) lost function of emand evaluated at the z-statistic
z statistic
z statistic
L(z) lost function of demand evaluated at the z-statistic
Stdard Normal Loss Function Table,L(z) z 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.00 -4.0 4.0900 4.0800 4.0700 4.0600 4.0500 4.0400 4.0300 4.0200 4.0100 4.0000 -3.9 3.9900 3.9800 3.9700 3.9600 3.9500 3.9400 3.9300 3.9200 3.9100 3.9000 -3.8 3.8900 3.8800 3.8700 3.8600 3.8500 3.8400 3.8300 3.8200 3.8100 3.8000 3.7 3.7900 3.7800 3.7700 3.7600 3.7500 3.7400 3.7300 3.7200 3.7100 3.7000 -3.6 3.6900 3.6800 3.6700 3.6600 3.6500 3.6400 3.6300 3.6200 3.6100 3.6000 -3.5 3.5900 3.5800 3.5700 3.5600 3.5500 3.5400 3.5301 3.5201 3.5101 3.5001 -3.4 3.4901 3.4801 3.4701 3.4601 3.4501 3.4401 3.4301 3.4201 3.4101 3.4001 -3.3 3.3901 3.3801 3.3701 3.3601 3.3501 3.3401 3.3301 3.3201 3.3101 3.3001 -3.2 3.2901 3.2801 3.2701 3.2601 3.2502 3.2402 3.2302 3.2202 3.2102 3.2002 -3.1 3.1902 3.1802 3.1702 3.1602 3.1502 3.1402 3.1302 3.1202 3.1103 3.1003 -3.0 3.0903 3.0803 3.0703 3.0603 3.0503 3.0403 3.0303 3.0204 3.0104 3.0004 -2.9 2.9904 2.9804 2.9704 2.9604 2.9505 2.9405 2.9305 2.9205 2.9105 2.9005 -2.8 2.8906 2.8806 2.8706 2.8606 2.8506 2.8407 2.8307 2.8207 2.8107 2.8008 -2.7 2.7908 2.7808 2.7708 2.7609 2.7509 2.7409 2.7310 2.7210 2.7110 2.7011 -2.6 2.6911 2.6811 2.6712 2.6612 2.6512 2.6413 2.6313 2.6214 2.6114 2.6015 -2.5 2.5915 2.5816 2.5716 2.5617 2.5517 2.5418 2.5318 2.5219 2.5119 2.5020 -2.4 2.4921 2.4821 2.4722 2.4623 2.4523 2.4424 2.4325 2.4226 2.4126 2.4027 -2.3 2.3928 2.3829 2.3730 2.3631 2.3532 2.3433 2.3334 2.3235 2.3136 2.3037 -2.2 2.2938 2.2839 2.2740 2.2641 2.2542 2.2444 2.2345 2.2246 2.2147 2.2049 -2.1 2.1950 2.1852 2.1753 2.1655 2.1556 2.1458 2.1360 2.1261 2.1163 2.1065 -2.0 2.0966 2.0868 2.0770 2.0672 2.0574 2.0476 2.0378 2.0280 2.0183 2.0085
Q#4 a-c
| Dan McClure | ||
| Buy-Back Procurement Contract | ||
| New Data | ||
| Inputs | ||
| Wholesale price | $ 60.00 | |
| Retail price | $ 120.00 | |
| Salvage value | $ 12.00 | |
| Production cost | $ 30.00 | |
| E(D) | 200 | |
| St Dev (D) | 50 | |
| Co | $ 48.00 | c-s |
| Cu | $ 60.00 | r-c |
| C* | 0.5556 | |
| Optimal Q | 207
SEKIL: a. |
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| z-score | 0.14 | |
| L(Z) | 0.3328 | |
| Expected Lost Sales | 17 | Std. Dev* L(z) |
| Expected Sales | 183 | E(D)-E(Lost Sales) |
| Expected Leftover Inventory | 24 | Q-E(Sales) |
| Expected Profit | $ 9,867.58
SEKIL: b. |
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| Publisher's Expected Profit | $ 6,209.57
SEKIL: c. |
Q#4 d-h
| Dan McClure | |||||
| Buy-Back Procurement Contract | |||||
| New Data | |||||
| Inputs | |||||
| Wholesale price | $ 60.00 | ||||
| Retail price | $ 120.00 | ||||
| Buy-back price | $ 45.00 | ||||
| Production cost | $ 30.00 | ||||
| Shipping cost | $ 5.00 | ||||
| E(D) | 200 | ||||
| St Dev (D) | 50 | ||||
| Co | $ 20.00 | c-b+t | |||
| Cu | $ 60.00 | r-c | |||
| C* | 0.7500 | ||||
| Optimal Q | 234
SEKIL: d. |
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| z-score | 0.67 | ||||
| L(Z) | 0.1503 | Returned book salvage at the publisher site | $ 15.00 | ||
| Expected Lost Sales | 8 | Std. Dev* L(z) | |||
| Expected Sales | 192 | E(D)-E(Lost Sales) | |||
| Expected Leftover Inventory | 41 | Q-E(Sales) | Publisher | ||
| Expected Profit | $ 10,724.31
SEKIL: e. |
Expected sales revenue | $ 14,023.47 | ||
| Production cost | $ 7,011.73 | ||||
| Leftover cost | $ 1,855.78 | ||||
| Salvage revenue | $ 618.59 | ||||
| Expected Profit | $ 5,774.55
SEKIL: f. |
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SEKIL: d. |
Optimum Buy-Back Price | $ 55.00
SEKIL: g. |
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| Dan's Net loss per book returned | $ 10.00
Likes: h. |
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SEKIL: e. |
i. 100% efficient. The supply chain allows the retailer (i.e. the buyer, Dan McClure) to purchase enough units to comfortably cover demand and not lose out to lost sales. In the case of overage, the seller will buy-back the leftover units, mitigating much of the risk of an overage. This allows the supply chain to operate with the largest possible "pie."
