Consider a company that designs, produces, and sells summer fashion items such as swimsuits. About 6 months
Question:
Consider a company that designs, produces, and sells summer fashion items such as swimsuits. About 6 months before summer, the company must commit itself to speci?c production quantities for all its products. Since there is no clear indication of how the market will respond to the new designs, the company needs to use various tools to predict demand for each design, and plan production and supply accordingly. In this setting, the trade-offs are clear: Overestimating customer demand will result in unsold inventory, whereas underestimating customer demand will lead to inventory stockouts and loss of potential customers.
To assist management in these decisions, the marketing department uses historical data from the last 5 years, current economic conditions, and other factors to construct a probabilistic forecast of the demand for swimsuits. They have identi?ed several possible scenarios for sales in the coming season, based on such factors as possible weather patterns and competitors' behavior, and assigned each a probability, or chance of occurring. The distribution of the demand is as follows: the probability that the demand is equal to 8000,10000,12000,14000,16000,18000 are 0.1,0.1,0.2,0.35,0.15,0.1, respectively.
Practical Management Science
ISBN: 978-1305250901
5th edition
Authors: Wayne L. Winston, Christian Albright