Hampton

Hamptonshire Express

 Anna has a degree from journalism & operations research  She has started a daily newspaper in her hometown  She used a leased PC: lease cost $10 per day  A local printer prints newspapers at 0.20 per copy  Sales the next day between 6 am and 10 am  Newsstand rental $30 per day  Express sold to customers at $1 per copy  Copies not sold by 10 am are discarded  Anna estimates daily demand to be distributed N(500,100)

1

Question 1

 Optimal stocking quantity?  Profit at this stocking quantity?

2

Ordering Level and Profits in Vertically Integrated Channel

h=1; Anna sells to market directly: i* = 584; E[Profit] = $331.33; Fill rate 98%

3

Improving demand through effort

 After 6 weeks of operation, Anna thinks she can improve demand by adding a profile section  Experiments indicate that demand is a function of time she invests in preparing the section  She thinks D=500 +50 h

4

Question 2

 How many hours should she invest daily in the creation of the profile section? Assume the opportunity cost of her time is $10 per hour.  Compare optimal profits to previous scenario

5

Optimal Level of Effort in Vertically Integrated Channel  Demand potential increases by 50 h  Expected profit increases by 0.8*50 h

h  h+1

0.8 * 50 * ( h  1  h )

01

12

40

16.56

23 34 45

12.71 10.71 9.44

i* = 684 E[Profit] = 371.33

6

Delegating sales to Ralph

 Anna is really busy, so asks Ralph to take-over the retailing portion of her job.  Ralph agrees to run the newsstand from 6 AM to 10 AM and pay the daily rent of $30  He estimates demand the next day based on viewing a copy of the paper the previous night at 10 PM  He buys the papers from Anna at $0.8 per copy  Ralph is responsible for unsold copies at the end of the day

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Question 3

 Assuming h=4 try to determine the optimal stocking quantity for Ralph?  Why is this quantity different than the one in Question 2?  Now vary...