Question 2

John is the store manager at Challenger in Changi City Point. He is evaluating inventory policies for Samsung TVs for the next two years.

The monthly demand for Samsung TVs follows a triangular distribution with a minimum of 100, a maximum of 500, and a most likely value of 340. Challenger incurs $980 for purchasing these TVs from Samsung and sells them to customers for $1,950. In addition, the holding cost is $20 per TV per month, and the ordering cost is $120.

Consider the following assumptions:
• Beginning inventory is 410 units.
• Current inventory policy is to order 900 TVs whenever the inventory at the end of a month falls below 200 units.
• Orders placed at the end of one month arrive at the beginning of the next month.
• Unmet demand in any month is considered as lost sales.

Question 2a
Construct a spreadsheet model to determine the average profit Challenger will earn from Samsung TVs over the next two years.

Comment on your findings.

Question 2b
Suppose John has the option to place an emergency order when demand exceeds the on-hand inventory. These orders will arrive instantaneously but cost $50 per TV.

Analyse whether he should opt for such an option.

Question 2c
Suppose John wants to find the best reorder point and order quantity that results in the highest profit over the next two years. The following table illustrates the options available:

Adjust the spreadsheet model you constructed for Q2b and find the best inventory policy for Samsung TVs for the next two years.

Comment on your findings.