BREE 420 Lecture 4: Case Analysis - Club Français du Vin
25 May 2018
School
Department
Course
Professor
Club Français du Vin - Case Analysis
Step 1
What are the costs of having one bottle too few in inventory (underage cost)? What are the
costs of having one bottle too many in inventory (overage cost)? List these costs qualitatively
and then attempt to attach numbers to them for, say, a 10 Euro bottle of white wine.
Underage Cost = Price - Cost
Overage Cost = Cost - Salvage value
• Underage Cost
Price of one bottle of white wine - Procurrement cost - Shipping cost
= 10 - 5 - 1.25
= 3.75
• Overage Cost
Purchase cost + Shipping cost + Warehousing (physical cost of carring inventory) + Capital
(capital investment holding cost) - Discount price
= 5 + 1.25 + (8 x 0.10) + (0.15 x 5 x 8/12) - (1-0.4) x 10
= 1.55
If we have a demand model (
)
, what would be the intuition about the ordering
quantity?
• We would order higher than the average demand because the overage cost is lower than
the underage cost.
Step 2
Assue the uderage ost is 3 Euro ad the overage ost is 1 Euro. Based o Le Clu’s past
forecasting performance (Exhibit 1), how many bottles would you order of a wine that is
forecasted to sell 2000 bottles? (Assume this is the final forecast, i.e., the forecast after any
potential adjustments to ensure that the aggregate forecast across all items matches some
target.)
• Initial forecast from the expert team
2000 bottles
• Compute cells G/F to get A/F
o Compute the average of values:
0.858336972
o Compute standard deviation of values:
0.472292249
• Compute the demand model
Mean = 2000 x 0.86 = 1720
Std. deviation = 2000 x 0.47 = 940
Normal distribution (1720 , 940)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
List these costs qualitatively and then attempt to attach numbers to them for, say, a 10 euro bottle of white wine. Overage cost = cost - salvage value: underage cost. Price of one bottle of white wine - procurrement cost - shipping cost. Purchase cost + shipping cost + warehousing (physical cost of carring inventory) + capital (capital investment holding cost) - discount price. If we have a demand model ( ), what would be the intuition about the ordering quantity: we would order higher than the average demand because the overage cost is lower than the underage cost. Assu(cid:373)e the u(cid:374)derage (cid:272)ost is 3 euro a(cid:374)d the overage (cid:272)ost is 1 euro. 2000 bottles: compute cells g/f to get a/f, compute the average of values: Std. deviation = 2000 x 0. 47 = 940. Normal distribution (1720 , 940: compute critical ratio (point where the expected gain is equal to the expected loss)
