If the transfer price, from Sheen to Armentrout, would decrease, Armentrout would ultimately gain a larger marginal benefit out of the purchasing deal with Sheen. Due to the increase of Armentrouts profit margin, he would tend to stock more newspapers, which would increase the supply chains fill rate. However, this, in turn, would cause Sheens profits, from the deal, to decrease and would ultimately lower her motivation to improve the newspaper, which leads to a decrease in expected demand and loss of potential profits. Efforts and stocking levels will be lower in a differentiated channel than in an integrated firm due to the multiple entities that are present in the supply chain.
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Stop Using Plagiarized Content. Get Essay Anna Sheen estimated the daily demand of newspapers to be on a normal standard distribution; stating that daily demand will have a mean of newspapers per day with a standard deviation of newspapers per day.
Using the function provided, the optimal stocking quantity, which maximizes expected profit, is determined to be approximately newspapers. Any inventory ordered above will produce a loss of profit due to stocking inventory over expected demand causing an imbalance between the gains and losses due to the respective overage and underage costs.
The table below outlines the optimal amount of daily expected profit. Profits rise until the newspaper mark; any potential increase in quantity stocked will decrease daily expected profit for every newspaper ordered above Stocking Quantity Daily Expected Profit newspapers The output of the Newsvendor equation, while different than the excel function due to rounding error , is consistent with the optimal stocking quantity found by the Excel model.
Using a table to compare the difference between problem 1 and problem 2, respectively, we can see the obvious differences between the optimal stocking quantity and daily expected profit figures.
Stocking Quantity Daily Expected Profit 1 You read "Hamptonshire Express" in category " Newspaper " By spending the extra time to improve the profile section, Anna Sheen increased the overall quality of her newspaper, which will, most likely, lead to an increased probability of demand for her newspaper around the area.
Problem 3 A. Due to this, Armentrout has less room than Sheen for a profit margin making it a higher risk for him to carry a greater amount of inventory, which ultimately affects the fill rate of the supply chain.
The optimal time spent to improve the quality of the profile section is determined by the table below: The profit Sheen will stand to make in the combined supply chain is optimal at 2. The marginal benefit, from the additional time spent to improve the paper, will increase expected demand of newspaper, however, if too much time is spent, the marginal costs, associated with the additional time, will outweigh the associated marginal benefits. Expected demand is more resistant to high levels of time spent, basically, Sheen is hurting profits above 2.
Due to this, she will put less effort in and get more expectation of demand. Efforts and stocking levels will be lower in a differentiated channel than in an integrated firm due to the multiple entities that are present in the supply chain. The multiple retailing and manufacturing entities, in the supply chain, allow the profits to be split by percentage rather than totaled to one firm who does both functions.
Problem 4 A. The optimal stocking quantity for Armentrout, in this scenario, was determined to be newspapers as shown by the table below: The optimal stocking quantity is lower at , in this scenario, as compared to in Problem 3a. However, there are major differences that one should consider.
The first two problems use an integrated point of view, as related to the supply chain, which allows for a higher optimal stocking quantity. On the other hand, Problems 3 and 4 use a differentiated channel.
In Problem 4, Armentrout makes more profit on Private, but there is a lower expectation of demand for Private. Due to this, he must still stock Express to maximize profits.
To demonstrate this phenomenon, which will ultimately decrease optimal stocking quantity, the new overage cost would have to be set. The Newsvendor model will also allow one to arrive at these conclusions.
Problem 5 A. The optimal level of expected profit is maximized when Sheen, the manufacturer, in this scenario, has a high expected profit margin, while Armentrout, the retailer, has a negative expected profit. Armentrout is basically a non-factor in this supply chain and allows this scenario to act as one integrated chain although technically it is differentiated. If Sheen were able to impose a franchise fee to Armentrout, however, she would not have a reason to sell newspapers at all, since her profits would be coming from franchising rather than newspaper sales.
Problem 6 A. Since she has control over stocking quantity, Armentrout could not make much of a profit using a differentiated supply chain model. However, due to proposed slotting allowance, Armentrout has the ability to make more of a profit than he would have battling against Sheen for stocking rights of the Express, if he would go for more of an integrated model and allow Sheen to control the Express.
Since Armentrout would not care about sales directly due to him collecting a slotting fee regardless of a sale or not , under the VMI plan versus the differentiated model, Armentrout might lose potential sales he might have gotten if he had a say in the daily stocking quantity of the Express.
If Armentrout had the chance to make a potential profit off of the consumers, he might try harder to pay attention to demand. How to cite Hamptonshire Express, Essays Choose cite format:.
Hamptonshire Express Case
The simulation indicates that is the optimum stocking quantity. The simulation and newsvendor model give the same optimal stocking quantity. Sheen would choose an effort level where the marginal benefit gained by the effort is equal to her marginal cost of expending the effort. To calculate the effort level, h, we equalize marginal cost and marginal benefit. The optimal stocking quantity differs from problem 2 because Ralph is incurring the cost of overstocking, which changes the critical ratio from. This is because Anna is now sharing her profit.
Hamptonshire Express Case Essay