Questions:

A) Which wine has the highest expected total net profit, assuming he orders the quantity prescribed by the newsvendor model??

• A. Folie de Roi
• B. La Buxynoise
• C. Ch. Haut Nouchet
• D. Domaines des Arcades
• E. Reserve du Club
• F. Ch. Florimond
• G. Gabriel Meffre
• H. La Reserve Rouge du Club

B) Which wine has the highest expected profit per bottle sold, assuming he orders the quantity prescribed by the Newsvendor model?

• A. Ch. Haut Nouchet
• B. Ch. Florimond
• C. La Reserve Rouge du Club
• D. Domaines des Arcades
• E. La Buxynoise
• F. Gabriel Meffre
• G. Reserve du Club
• H. Folie de Roi

C) Suppose through extensive marketing efforts Le Club could reduce the standard deviation of a single wine by 90%. For example, if they chose to do this for La Reserve Rouge du Club, the standard deviation would be reduced from 1,280 to 128. Based on the resulting increase in net profits, which wine should they do this for?

• A. La Reserve Rouge du Club
• B. Domaine des Arcades
• C. Ch. Haut Nouchet
• D. Reserve du Club
• E. Folie de Roi
• F. Gabriel Meffre
• G. La Buxynoise
• H. Ch. Florimond

D) Suppose that through marketing efforts they can increase the mean demand of exactly one wine by 500 bottles. For example, if they did so for La Reserve Rouge du Club they would increase the mean demand from 3,500 bottles to 4,000 bottles. Note the standard deviation remains the same. Based on increase in net profits, which wine should they choose?

• A. Ch. Haut Nouchet
• B. La Reserve Rouge du Club
• C. La Buxynoise
• D. Reserve du Club
• E. Folie de Roi
• F. Gabriel Meffre
• G. Domaine des Arcades
• H. Ch. Florimond

Stephane Zanella's current task is to decide Le Club's order for the wines in an upcoming catalog of the catalog retailer Le Club Francais du Vin Ordering occurs several months before publishing the catalog. Upon receiving the order, the grower decorates the bottles with a label unique to Le Club and sends the order to Le Club's warehouse in Dijon. Le Club's exclusive label prevents consumers from comparing prices with supermarket offerings and allows Le Club to enjoy comfortable gross margins of about 50% In addition to the cost of purchasing each bottle, Le Club incurs a 1.25 euros shipping and handling cost per bottle on its outbound shipments to customers. If Zanella buys too many bottles for a catalog season, then the excess bottles are stored in a warehouse and are sold at a discount. As a rule of thumb, Zanella assumes that an overbought wine needs to be discounted by 35% off its retail price to liquidate the inventory. Each bottle sold at a discount still incurs a 1.25 euro shipping cost. Furthermore, the time spent in the warehouse incurs a 1.1 euro storage cost and an opportunity cost of capital equal to 15% of the purchase price. Demand Forecast (bottles) Retail Price ( per bottle) Standard Deviation Appellation VDP des Coteaux de LArdche Bordeaux Designation La Rserve Rouge clu Club Reserve du Club Mean 3500 3.25 1280 4.50 2900 1080 Minervois Domaine des Arcacles-FID 5.21 4000 1430 How much of each wine should he order to maximize expected profit? If he orders that quantity, what is the probability he will have left over inventory? Which wines are most and least profitable? If they want a 75% in-stock probability with each wine how much should they order. Should they aim for that service level? Cotes du Ventoux Gabriel Meffre (6) 560 1200 480 . Ctes de Bourg Ch. Florimond 7.20 510 1300 12,000 Madiran Folie de Roi 9.00 3000 Givry La Buxynoise 12.90 900 360 Pessac Leognan Ch. Haut Nouchet 18.90 1300 510