The retailer Zara is known for selling items over a very short season. For a certain...

Transcribed Image Text:

The retailer Zara is known for selling items over a very short season. For a certain blue jacket in size medium, Zara estimates the demand during an 8-week selling season at the Toronto Bloor Street store to be 50 units with standard deviation of 10 units. Demand is bell-shaped (Normal distribution). The jacket retails for $150. The cost to produce and stock the jacket is $100. Zara sells items at the end of the selling season for 1/2 of the original retail price. a) [5 pts] Suppose Zara assumes that there is no penalty for a lost sale other than the lost margin. How many units should Zara stock? b) [2 pts] For your answer in (a), what would be the expected lost sales, i.e., the number of customers that would have purchased the jacket but could not because the store sold out? Suppose Zara, in fact, holds 60 units at the start of the selling season. c) [5 pts] Approximately, what penalty is Zara attributing to a lost sale by its choice to stock 60 units? (Hint: What z-value corresponds to 60 units?) d) [2 pts] What would be the expected lost sales (assuming they stock 60 units)? e) [2 pts] How many of the 60 jackets should they expect to sell? f) [2 pts] What is the expected mismatch cost for stocking 60 units? g) [2 pts] What would have been the mismatch cost if Zara stocked the number of units from your answer in (a) assuming Zara incurs the penalty for lost sales you found in (c)? h) [5 pts] Zara's annual sales are $35B. Referencing your answer in parts (f) and (g), explain how inventory shortage penalties such as loss of goodwill might affect Zara's performance. The retailer Zara is known for selling items over a very short season. For a certain blue jacket in size medium, Zara estimates the demand during an 8-week selling season at the Toronto Bloor Street store to be 50 units with standard deviation of 10 units. Demand is bell-shaped (Normal distribution). The jacket retails for $150. The cost to produce and stock the jacket is $100. Zara sells items at the end of the selling season for 1/2 of the original retail price. a) [5 pts] Suppose Zara assumes that there is no penalty for a lost sale other than the lost margin. How many units should Zara stock? b) [2 pts] For your answer in (a), what would be the expected lost sales, i.e., the number of customers that would have purchased the jacket but could not because the store sold out? Suppose Zara, in fact, holds 60 units at the start of the selling season. c) [5 pts] Approximately, what penalty is Zara attributing to a lost sale by its choice to stock 60 units? (Hint: What z-value corresponds to 60 units?) d) [2 pts] What would be the expected lost sales (assuming they stock 60 units)? e) [2 pts] How many of the 60 jackets should they expect to sell? f) [2 pts] What is the expected mismatch cost for stocking 60 units? g) [2 pts] What would have been the mismatch cost if Zara stocked the number of units from your answer in (a) assuming Zara incurs the penalty for lost sales you found in (c)? h) [5 pts] Zara's annual sales are $35B. Referencing your answer in parts (f) and (g), explain how inventory shortage penalties such as loss of goodwill might affect Zara's performance.

Answer rating: 100% (QA)

a To determine how many units Zara should stock we need to calculate the safety stock that would prevent stockouts with a certain level of confidence ... View the full answer