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Homework 2

The document outlines Homework 2 with a deadline of March 18, 2026, consisting of two questions related to inventory management systems. Question 1 requires rating the decentralization level of six network options and defining safety stock and risk pool benefits. Question 2 compares decentralized and centralized inventory systems for two identical retailers facing random demand, requiring calculations of order quantities and expected profits for each system.

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5 views1 page

Homework 2

The document outlines Homework 2 with a deadline of March 18, 2026, consisting of two questions related to inventory management systems. Question 1 requires rating the decentralization level of six network options and defining safety stock and risk pool benefits. Question 2 compares decentralized and centralized inventory systems for two identical retailers facing random demand, requiring calculations of order quantities and expected profits for each system.

Uploaded by

evahuynh05
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

HOMEWORK 2

Deadline: 4:00 pm Wednesday 18/3/2026

Question 1: Using the scale of 1 – 6 with 1 corresponding to the most centralized, and 6 the
most decentralized system, rate the decentralization level of six network options. Based on
this rating, define the magnitude of safety stock and the risk pool benefits on six options over
the scale of 1 – 6 with 1 corresponding to the most, and 6 the least.

Question 2: Consider 2 identical retailers, with the same costs and characteristics, facing
random demand for a single product. We compare the two systems, the decentralized and
centralized one. In the centralized pooled system, the retailers together operate a joint
inventory facility and take items out of the pooled inventory to meet demand. In the
decentralized system, each retailer individually orders from the manufacturer to meet
demand.

We consider a single period of random demand. The probabilistic forecast of demand faced
by each retailer is depicted in the following table. The wholesale price is $100 per unit, the
selling price of $120 per unit, salvage value of $40 per unit, and production cost of $45 per
unit. If the order quantity must be multiples of 1,000 units. What’s each retailer’s best order
quantity in a period in each system? What is the retailer’s expected profit? Manufacturer’s
profit in each system?

Demand 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000

Probabilistic 5% 10% 12% 20% 20% 10% 10% 8% 5%

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