Question $1$: Financial Impact$-$ Stockouts $($Read this information carefully!$)$

Below are supply chain members for two brands of soap: $$RedSoap$$ and $$BlueSoap$$ Assume

that customers will always choose $$RedSoap$$ first when purchasing soap and that the profit on

this brand is the higher of the two. Using the information below, calculate the total stockout cost

for each member of the supply chain and compare the costs of each.

Retailer $($carries both RedSoap and BlueSoap brands$)$:

$25\%$ of customers will accept a backorder of RedSoap

$30\%$ will buy BlueSoap if RedSoap is out of stock $($same store$)$

$20\%$ will go to a different store $($lost sale$)$

$25\%$ will discontinue doing business with the retailer

Each RedSoap backorder costs $$59$

Each BlueSoap purchase costs $$70($lost profit$)$

Each RedSoap lost sale costs $$145$

Each RedSoap lost customer costs $$1,600$

Manufacturer for RedSoap:

$85\%$ of distributors will accept a backorder

$9\%$ will use another source $($lost sale$)$

$6\%$ will discontinue doing business with the manufacturer

Each backorder costs $$400$

Each lost sale costs $$9,000$

Each lost customer costs $$70,000$

Manufacturer for BlueSoap:

$40\%$ of distributors will accept a backorder

$35\%$ will use another source $($lost sale$)$

$25\%$ will discontinue doing business with the manufacturer

Each backorder costs $$3,000$

Each lost sale costs $$6,000$

Each lost customer costs $$75,000$

HW #$1$ Summer $12024$

$2$

Distributor $($carries both brands$)$:

$45\%$ of retailers will accept a backorder of RedSoap

$20\%$ of retailers will accept extra shipment of BlueSoap

$30\%$ will use another source $($lost sale$)$

$5\%$ will discontinue doing business with the distributor

Each backorder of RedSoap costs $$200$

Each extra shipment of BlueSoap costs $$65$

Each lost sale costs $$1,500$

Each lost customer costs $$16,000$

Supplier $($supplies to both Manufacturers$)$:

RedSoap information

$50\%$ of the time will accept a backorder

$25\%$ of the time uses a second supplier

$15\%$ of the time, permanently changes allocation.

$10\%$ of the time, discontinues doing business with supplier

Each backorder costs $$2,500$

Each lost sale costs $$5,000$

Each lost allocation costs $$60,000$

Each lost customer costs $$1,200,000$

Supplier $($supplies to both of the manufacturers$)$:

BlueSoap information

$65\%$ of the time will accept a backorder

$12\%$ of the time uses a second supplier

$15\%$ of the time, permanently changes allocation

$8\%$ of the time, discontinues doing business with supplier

Each backorder costs $$1,500$

Each lost sale costs $$3,250$

Each lost allocation costs $$45,000$

Each lost customer costs $$275,000$

HW #$1$ Summer $12024$

$3$

Financial Impact $$ Changes in order fill rates

The retailer in Question $1$ has negotiated new pricing and distribution deals with both RedSoap

and BlueSoap and has gathered more data on their stockout costs. The new stockout costs

related to the two brands are as follows:

Retailer $($carries both RedSoap and BlueSoap brands$)$:

$6\%$ of customers will accept a backorder of RedSoap

$9\%$ of customers will accept a backorder of BlueSoap

$13\%$ will buy BlueSoap if RedSoap is out of stock $($same store$)$

$16\%$ will buy RedSoap if BlueSoap is out of stock $($same store$)$

$17\%$ will go to a different store if RedSoap is out of stock $($lost sale$)$

$18\%$ will go to a different store if BlueSoap is out of stock $($lost sale$)$

$8\%$ will discontinue doing business with the retailer if RedSoap is out of stock $($lost customer$)$

$9\%$ will discontinue doing business with the retailer if BlueSoap is out of stock $($lost customer$)$

$4\%$ will discontinue doing business with the retailer if both RedSoap and BlueSoap are out.

Each RedSoap backorder costs $$25$

Each BlueSoap backorder costs $$22$

Each BlueSoap purchase costs $$130($lost profit$)$

Each RedSoap purchase costs $$0($lost profit$)$

Each lost sale of RedSoap costs $$155$

Each lost sale of BlueSoap costs $$120$

Each lost customer because of RedSoap costs $$1,450$

Each lost customer because of BlueSoap costs $$1,000$

Each lost customer because of both soaps cost $$1,200$

Question $2,$ Part a$)$ Using the information above, calculate the new total stockout cost for the

retailer $($who carries both RedSoap and Bluesoap$).$

Question $2,$ Part b$)$ Using the total stockout cost from Part a$),$ calculate the cash flow lost for

each of the following fill rate $\%($i$.$e$.,$ customer service$)$: $75\%,80\%,85\%,90\%.$ Then calculate

the difference between the rates.

$1,400$ units per order $($average$)$

$3,000$ orders per year

Pretax profit per unit $=$ $$3$

Pretax profit per order $=$ $$4,200$

Invoice deduction per order $=$ $$350$

Percentage of incomplete orders back$-$ordered is $77\%$

Stockout costs $($per order$)=$ Use Retailer Stockout cost from Part a$)$

Percentage of incomplete orders cancelled is $23\%$

HW #$1$ Summer $12024$

Question $2,$ Part c$)$ You learned in Dr$.$ Kirchoff$$s SLM class that increases in fill rates come with a trade$-$off: an increase in inventory costs. Given that the additional inventory at an $80\%$

fill rate is $$135,000,$ at an $85\%$ fill rate is $$270,000,$ and at a $90\%$ fill rate is $$540,00$ Question $1$: What is the total stockout cost for the Retailer?