This is the probabilistic forecast from examples 2-2 to 2-5

and the examples in Chapter 4.

8000
10000
12000
14000
16000
18000
Average

11%
11%
28%
22%
18%
10%

Demand Scenarios

Weighted Demand

880
1100
3360
3080
2880
1800
13100

Probability

Demand Probability

30%
25%
20%
15%
10%
5%
0%
8000 10000 12000

Demand Scenarios

12000 14000 16000 18000

Sales

These are the expected (or average) profit calculations for various different order levels
as described in examples 2-2 to 2-5
These are the cost parameters:
Item

Variable Production Cost

Fixed Production Cost
Selling Price
Salvage Value

Cost

INR 80.00
INR 100,000.00
INR 125.00
INR 20.00

These are the average revenue calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

5000
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00

5500
INR 147,500.00
INR 147,500.00
INR 147,500.00
INR 147,500.00
INR 147,500.00
INR 147,500.00
INR 147,500.00

6000
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00

Maximum:

Profit

Expected Profit
INR 400,000
INR 300,000
INR 200,000
INR 100,000
INR 0
5000

10000
Order Quantity

15000

6500
INR 192,500.00
INR 192,500.00
INR 192,500.00
INR 192,500.00
INR 192,500.00
INR 192,500.00
INR 192,500.00

7000
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00

7500
INR 237,500.00
INR 237,500.00
INR 237,500.00
INR 237,500.00
INR 237,500.00
INR 237,500.00
INR 237,500.00

8000
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00

8500
INR 230,000.00
INR 282,500.00
INR 282,500.00
INR 282,500.00
INR 282,500.00
INR 282,500.00
INR 276,725.00

Profit for a Given Production Level

9000
INR 200,000.00
INR 305,000.00
INR 305,000.00
INR 305,000.00
INR 305,000.00
INR 305,000.00
INR 293,450.00

it for a Given Production Level

9500
INR 170,000.00
INR 327,500.00
INR 327,500.00
INR 327,500.00
INR 327,500.00
INR 327,500.00
INR 310,175.00

10000
INR 140,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 326,900.00

10500
INR 110,000.00
INR 320,000.00
INR 372,500.00
INR 372,500.00
INR 372,500.00
INR 372,500.00
INR 337,850.00

11000
INR 80,000.00
INR 290,000.00
INR 395,000.00
INR 395,000.00
INR 395,000.00
INR 395,000.00
INR 348,800.00

11500
INR 50,000.00
INR 260,000.00
INR 417,500.00
INR 417,500.00
INR 417,500.00
INR 417,500.00
INR 359,750.00

12000
INR 20,000.00
INR 230,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 370,700.00
INR 370,700

12500
-INR 10,000.00
INR 200,000.00
INR 410,000.00
INR 462,500.00
INR 462,500.00
INR 462,500.00
INR 366,950.00

13000
-INR 40,000.00
INR 170,000.00
INR 380,000.00
INR 485,000.00
INR 485,000.00
INR 485,000.00
INR 363,200.00

13500
14000
14500
15000
-INR 70,000.00 -INR 100,000.00 -INR 130,000.00 -INR 160,000.00
INR 140,000.00 INR 110,000.00
INR 80,000.00
INR 50,000.00
INR 350,000.00 INR 320,000.00 INR 290,000.00 INR 260,000.00
INR 507,500.00 INR 530,000.00 INR 500,000.00 INR 470,000.00
INR 507,500.00 INR 530,000.00 INR 552,500.00 INR 575,000.00
INR 507,500.00 INR 530,000.00 INR 552,500.00 INR 575,000.00
INR 359,450.00 INR 355,700.00 INR 340,400.00 INR 325,100.00

15500
16000
16500
-INR 190,000.00 -INR 220,000.00 -INR 250,000.00
INR 20,000.00 -INR 10,000.00 -INR 40,000.00
INR 230,000.00 INR 200,000.00 INR 170,000.00
INR 440,000.00 INR 410,000.00 INR 380,000.00
INR 597,500.00 INR 620,000.00 INR 590,000.00
INR 597,500.00 INR 620,000.00 INR 642,500.00
INR 309,800.00 INR 294,500.00 INR 269,750.00

This is the buy back contract example from Chapter 4

from the inventory chapter:

These are the cost and contract parameters:

Item

Price

Retailer sells for:

Manufacturer sells for:
Salvage:
Manufacturer buy back:
Fixed Production Cost:
Variable Production Cost:

INR 125.00
INR 80.00
INR 20.00
INR 55.00
INR 100,000.00
INR 35.00

NOTE: The Retailer can either salvage goods, or

the manufacturer will buy them back, and salvage them herself.

This is the retailer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00

6000
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00

7000
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00

5000
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00
INR 125,000.00

6000
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00
INR 170,000.00

7000
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00
INR 215,000.00

INR 350,000.00

INR 440,000.00

INR 530,000.00

Maximum:

This is the manufacturer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit vs Order Quantity

INR 1,200,000.00

Profit (INR)

INR 1,000,000.00
INR 800,000.00
INR 600,000.00
INR 400,000.00
INR 200,000.00
INR 0.00
5,000

8,000

11,000

Quantity

14,000

d salvage them herself.

8000
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00

Profit for a Given Retailer Order Level

9000
10000
11000
INR 335,000.00 INR 310,000.00 INR 285,000.00
INR 405,000.00 INR 450,000.00 INR 425,000.00
INR 405,000.00 INR 450,000.00 INR 495,000.00
INR 405,000.00 INR 450,000.00 INR 495,000.00
INR 405,000.00 INR 450,000.00 INR 495,000.00
INR 405,000.00 INR 450,000.00 INR 495,000.00
INR 397,300.00 INR 434,600.00 INR 464,200.00

12000
INR 260,000.00
INR 400,000.00
INR 540,000.00
INR 540,000.00
INR 540,000.00
INR 540,000.00
INR 493,800.00

13000
INR 235,000.00
INR 375,000.00
INR 515,000.00
INR 585,000.00
INR 585,000.00
INR 585,000.00
INR 503,800.00

8000
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00
INR 260,000.00

Profit for a Given Retailer Order Level

9000
10000
11000
INR 270,000.00 INR 280,000.00 INR 290,000.00
INR 305,000.00 INR 350,000.00 INR 360,000.00
INR 305,000.00 INR 350,000.00 INR 395,000.00
INR 305,000.00 INR 350,000.00 INR 395,000.00
INR 305,000.00 INR 350,000.00 INR 395,000.00
INR 305,000.00 INR 350,000.00 INR 395,000.00
INR 301,150.00 INR 342,300.00 INR 379,600.00

12000
INR 300,000.00
INR 370,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 416,900.00

13000
INR 310,000.00
INR 380,000.00
INR 450,000.00
INR 485,000.00
INR 485,000.00
INR 485,000.00
INR 444,400.00

INR 910,700.00

INR 948,200.00

INR 620,000.00

INR 698,450.00

INR 776,900.00

INR 843,800.00

Dist. P
Mfg. P
Total P.

14,000

17,000

14000
INR 210,000.00
INR 350,000.00
INR 490,000.00
INR 630,000.00
INR 630,000.00
INR 630,000.00
INR 513,800.00

15000
INR 185,000.00
INR 325,000.00
INR 465,000.00
INR 605,000.00
INR 675,000.00
INR 675,000.00
INR 508,400.00

16000
INR 160,000.00
INR 300,000.00
INR 440,000.00
INR 580,000.00
INR 720,000.00
INR 720,000.00
INR 503,000.00

17000
INR 135,000.00
INR 275,000.00
INR 415,000.00
INR 555,000.00
INR 695,000.00
INR 765,000.00
INR 485,000.00

18000
INR 110,000.00
INR 250,000.00
INR 390,000.00
INR 530,000.00
INR 670,000.00
INR 810,000.00
INR 467,000.00

15000
INR 330,000.00
INR 400,000.00
INR 470,000.00
INR 540,000.00
INR 575,000.00
INR 575,000.00
INR 491,700.00

16000
INR 340,000.00
INR 410,000.00
INR 480,000.00
INR 550,000.00
INR 620,000.00
INR 620,000.00
INR 511,500.00

17000
INR 350,000.00
INR 420,000.00
INR 490,000.00
INR 560,000.00
INR 630,000.00
INR 665,000.00
INR 525,000.00

18000
INR 360,000.00
INR 430,000.00
INR 500,000.00
INR 570,000.00
INR 640,000.00
INR 710,000.00
INR 538,500.00

INR 513,800

14000
INR 320,000.00
INR 390,000.00
INR 460,000.00
INR 530,000.00
INR 530,000.00
INR 530,000.00
INR 471,900.00

INR 538,500

INR 985,700.00

INR 1,000,100.00

INR 1,014,500.00
INR 1,014,500

INR 1,010,000.00

INR 1,005,500.00

This is the revenue sharing contract example from Chapter 4.

These are the cost and contract parameters:

Item

Retailer sells for:

Manufacturer sells for:
Salvage:
Revenue Sharing:
Fixed Production Cost:
Variable Production Cost:

Price

INR 125.00
INR 60.00
INR 20.00
INR 0.15
INR 100,000.00
INR 35.00

NOTE: The Retailer pays this percentage of revenue to

the manufacturer.

This is the retailer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
INR 231,250.00
INR 231,250.00
INR 231,250.00
INR 231,250.00
INR 231,250.00
INR 231,250.00
INR 231,250.00

6000
INR 277,500.00
INR 277,500.00
INR 277,500.00
INR 277,500.00
INR 277,500.00
INR 277,500.00
INR 277,500.00

7000
INR 323,750.00
INR 323,750.00
INR 323,750.00
INR 323,750.00
INR 323,750.00
INR 323,750.00
INR 323,750.00

5000
INR 118,750.00
INR 118,750.00
INR 118,750.00
INR 118,750.00
INR 118,750.00
INR 118,750.00
INR 118,750.00

6000
INR 162,500.00
INR 162,500.00
INR 162,500.00
INR 162,500.00
INR 162,500.00
INR 162,500.00
INR 162,500.00

7000
INR 206,250.00
INR 206,250.00
INR 206,250.00
INR 206,250.00
INR 206,250.00
INR 206,250.00
INR 206,250.00

INR 350,000.00

INR 440,000.00

INR 530,000.00

Maximum:

This is the manufacturer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit vs Order Quantity

INR 1,200,000.00

Profit (INR)

INR 1,000,000.00
INR 800,000.00
INR 600,000.00
INR 400,000.00
INR 200,000.00
INR 0.00
5,000

8,000

11,000

Quantity

14,000

ge of revenue to

8000
INR 370,000.00
INR 370,000.00
INR 370,000.00
INR 370,000.00
INR 370,000.00
INR 370,000.00
INR 370,000.00

Profit for a Given Retailer Order Level

9000
10000
11000
INR 330,000.00 INR 290,000.00 INR 250,000.00
INR 416,250.00 INR 462,500.00 INR 422,500.00
INR 416,250.00 INR 462,500.00 INR 508,750.00
INR 416,250.00 INR 462,500.00 INR 508,750.00
INR 416,250.00 INR 462,500.00 INR 508,750.00
INR 416,250.00 INR 462,500.00 INR 508,750.00
INR 406,762.50 INR 443,525.00 INR 470,800.00

12000
INR 210,000.00
INR 382,500.00
INR 555,000.00
INR 555,000.00
INR 555,000.00
INR 555,000.00
INR 498,075.00

13000
INR 170,000.00
INR 342,500.00
INR 515,000.00
INR 601,250.00
INR 601,250.00
INR 601,250.00
INR 501,200.00

8000
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00

Profit for a Given Retailer Order Level

9000
10000
11000
INR 275,000.00 INR 300,000.00 INR 325,000.00
INR 293,750.00 INR 337,500.00 INR 362,500.00
INR 293,750.00 INR 337,500.00 INR 381,250.00
INR 293,750.00 INR 337,500.00 INR 381,250.00
INR 293,750.00 INR 337,500.00 INR 381,250.00
INR 293,750.00 INR 337,500.00 INR 381,250.00
INR 291,687.50 INR 333,375.00 INR 373,000.00

12000
INR 350,000.00
INR 387,500.00
INR 425,000.00
INR 425,000.00
INR 425,000.00
INR 425,000.00
INR 412,625.00

13000
INR 375,000.00
INR 412,500.00
INR 450,000.00
INR 468,750.00
INR 468,750.00
INR 468,750.00
INR 447,000.00

INR 910,700.00

INR 948,200.00

INR 620,000.00

INR 698,450.00

INR 776,900.00

INR 843,800.00

Dist. P
Mfg. P
Total P.

14,000

17,000

14000
INR 130,000.00
INR 302,500.00
INR 475,000.00
INR 647,500.00
INR 647,500.00
INR 647,500.00
INR 504,325.00

15000
INR 90,000.00
INR 262,500.00
INR 435,000.00
INR 607,500.00
INR 693,750.00
INR 693,750.00
INR 488,475.00

16000
INR 50,000.00
INR 222,500.00
INR 395,000.00
INR 567,500.00
INR 740,000.00
INR 740,000.00
INR 472,625.00

17000
INR 10,000.00
INR 182,500.00
INR 355,000.00
INR 527,500.00
INR 700,000.00
INR 786,250.00
INR 441,250.00

18000
-INR 30,000.00
INR 142,500.00
INR 315,000.00
INR 487,500.00
INR 660,000.00
INR 832,500.00
INR 409,875.00

15000
INR 425,000.00
INR 462,500.00
INR 500,000.00
INR 537,500.00
INR 556,250.00
INR 556,250.00
INR 511,625.00

16000
INR 450,000.00
INR 487,500.00
INR 525,000.00
INR 562,500.00
INR 600,000.00
INR 600,000.00
INR 541,875.00

17000
INR 475,000.00
INR 512,500.00
INR 550,000.00
INR 587,500.00
INR 625,000.00
INR 643,750.00
INR 568,750.00

18000
INR 500,000.00
INR 537,500.00
INR 575,000.00
INR 612,500.00
INR 650,000.00
INR 687,500.00
INR 595,625.00

INR 504,325

14000
INR 400,000.00
INR 437,500.00
INR 475,000.00
INR 512,500.00
INR 512,500.00
INR 512,500.00
INR 481,375.00

INR 595,625

INR 985,700.00

INR 1,000,100.00

INR 1,014,500.00
INR 1,014,500

INR 1,010,000.00

INR 1,005,500.00

This is the global optimal solution in Example 4-6

manufacturing case from the inventory chapter:

These are the cost parameters:

Item

Retailer sells for:

Salvage:
Fixed Production Cost:
Variable Production Cost:

Price

INR 125.00
INR 20.00
INR 100,000.00
INR 35.00

This is the system's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

5000
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00
INR 350,000.00

6000
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00
INR 440,000.00

7000
INR 530,000.00
INR 530,000.00
INR 530,000.00
INR 530,000.00
INR 530,000.00
INR 530,000.00
INR 530,000.00

Maximum:

Profit vs Order Quantity

INR 1,200,000.00

System Profit (INR)

INR 1,000,000.00
INR 800,000.00
INR 600,000.00
INR 400,000.00
INR 200,000.00
INR 0.00
5,000

8,000

11,000

Quantity

14,000

8000
INR 620,000.00
INR 620,000.00
INR 620,000.00
INR 620,000.00
INR 620,000.00
INR 620,000.00
INR 620,000.00

17,000

Profit for a Given Order Level

9000
10000
INR 605,000.00 INR 590,000.00
INR 710,000.00 INR 800,000.00
INR 710,000.00 INR 800,000.00
INR 710,000.00 INR 800,000.00
INR 710,000.00 INR 800,000.00
INR 710,000.00 INR 800,000.00
INR 698,450.00 INR 776,900.00

11000
INR 575,000.00
INR 785,000.00
INR 890,000.00
INR 890,000.00
INR 890,000.00
INR 890,000.00
INR 843,800.00

12000
13000
INR 560,000.00 INR 545,000.00
INR 770,000.00 INR 755,000.00
INR 980,000.00 INR 965,000.00
INR 980,000.00 INR 1,070,000.00
INR 980,000.00 INR 1,070,000.00
INR 980,000.00 INR 1,070,000.00
INR 910,700.00 INR 948,200.00

14000
INR 530,000.00
INR 740,000.00
INR 950,000.00
INR 1,160,000.00
INR 1,160,000.00
INR 1,160,000.00
INR 985,700.00

15000
INR 515,000.00
INR 725,000.00
INR 935,000.00
INR 1,145,000.00
INR 1,250,000.00
INR 1,250,000.00
INR 1,000,100.00

16000
INR 500,000.00
INR 710,000.00
INR 920,000.00
INR 1,130,000.00
INR 1,340,000.00
INR 1,340,000.00
INR 1,014,500.00
INR 1,014,500

17000
INR 485,000.00
INR 695,000.00
INR 905,000.00
INR 1,115,000.00
INR 1,325,000.00
INR 1,430,000.00
INR 1,010,000.00

18000
INR 470,000.00
INR 680,000.00
INR 890,000.00
INR 1,100,000.00
INR 1,310,000.00
INR 1,520,000.00
INR 1,005,500.00

This is the payback contract example from Chapter 4.

These are the cost and contract parameters:

Item

Manufacturer sells for:

Distributor sells for:
Salvage:
Retailer pay back:
Fixed Production Cost:
Variable Production Cost:

Price

INR 80.00
INR 125.00
INR 20.00
INR 18.00
INR 100,000.00
INR 55.00

Note: Retailer pays this for each unit she doesn't purchase

This is the manufacturer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
INR 25,000.00
INR 25,000.00
INR 25,000.00
INR 25,000.00
INR 25,000.00
INR 25,000.00
INR 25,000.00

6000
INR 50,000.00
INR 50,000.00
INR 50,000.00
INR 50,000.00
INR 50,000.00
INR 50,000.00
INR 50,000.00

7000
INR 75,000.00
INR 75,000.00
INR 75,000.00
INR 75,000.00
INR 75,000.00
INR 75,000.00
INR 75,000.00

5000
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00

6000
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00
INR 270,000.00

7000
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00
INR 315,000.00

INR 250,000.00

INR 320,000.00

INR 390,000.00

Maximum:

This is the distributor's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit vs Order Quantity

INR 800,000.00
INR 700,000.00

INR 700,000.00

Profit (INR)

INR 600,000.00
INR 500,000.00
INR 400,000.00
INR 300,000.00
INR 200,000.00
INR 100,000.00
INR 0.00
5,000

8,000

11,000

Quantity

14,000

doesn't purchase

8000
INR 100,000.00
INR 100,000.00
INR 100,000.00
INR 100,000.00
INR 100,000.00
INR 100,000.00
INR 100,000.00

Profit for a Given Manufacturing Level

9000
10000
INR 83,000.00
INR 66,000.00
INR 125,000.00 INR 150,000.00
INR 125,000.00 INR 150,000.00
INR 125,000.00 INR 150,000.00
INR 125,000.00 INR 150,000.00
INR 125,000.00 INR 150,000.00
INR 120,380.00 INR 140,760.00

11000
INR 49,000.00
INR 133,000.00
INR 175,000.00
INR 175,000.00
INR 175,000.00
INR 175,000.00
INR 156,520.00

12000
INR 32,000.00
INR 116,000.00
INR 200,000.00
INR 200,000.00
INR 200,000.00
INR 200,000.00
INR 172,280.00

13000
INR 15,000.00
INR 99,000.00
INR 183,000.00
INR 225,000.00
INR 225,000.00
INR 225,000.00
INR 176,280.00

8000
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00
INR 360,000.00

Profit for a Given Manufacturing Level

9000
10000
INR 342,000.00 INR 324,000.00
INR 405,000.00 INR 450,000.00
INR 405,000.00 INR 450,000.00
INR 405,000.00 INR 450,000.00
INR 405,000.00 INR 450,000.00
INR 405,000.00 INR 450,000.00
INR 398,070.00 INR 436,140.00

11000
INR 306,000.00
INR 432,000.00
INR 495,000.00
INR 495,000.00
INR 495,000.00
INR 495,000.00
INR 467,280.00

12000
INR 288,000.00
INR 414,000.00
INR 540,000.00
INR 540,000.00
INR 540,000.00
INR 540,000.00
INR 498,420.00

13000
INR 270,000.00
INR 396,000.00
INR 522,000.00
INR 585,000.00
INR 585,000.00
INR 585,000.00
INR 511,920.00

INR 623,800.00

INR 670,700.00

INR 688,200.00

INR 460,000.00

INR 518,450.00

INR 576,900.00

Dist. P
Mfg. P
Total P.

14,000

17,000

14000
-INR 2,000.00
INR 82,000.00
INR 166,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 180,280.00

15000
-INR 19,000.00
INR 65,000.00
INR 149,000.00
INR 233,000.00
INR 275,000.00
INR 275,000.00
INR 175,040.00

16000
-INR 36,000.00
INR 48,000.00
INR 132,000.00
INR 216,000.00
INR 300,000.00
INR 300,000.00
INR 169,800.00

17000
-INR 53,000.00
INR 31,000.00
INR 115,000.00
INR 199,000.00
INR 283,000.00
INR 325,000.00
INR 157,000.00

18000
-INR 70,000.00
INR 14,000.00
INR 98,000.00
INR 182,000.00
INR 266,000.00
INR 350,000.00
INR 144,200.00

15000
INR 234,000.00
INR 360,000.00
INR 486,000.00
INR 612,000.00
INR 675,000.00
INR 675,000.00
INR 525,060.00

16000
INR 216,000.00
INR 342,000.00
INR 468,000.00
INR 594,000.00
INR 720,000.00
INR 720,000.00
INR 524,700.00

17000
INR 198,000.00
INR 324,000.00
INR 450,000.00
INR 576,000.00
INR 702,000.00
INR 765,000.00
INR 513,000.00

18000
INR 180,000.00
INR 306,000.00
INR 432,000.00
INR 558,000.00
INR 684,000.00
INR 810,000.00
INR 501,300.00

INR 700,100.00

INR 694,500.00

INR 670,000.00

INR 645,500.00

INR 180,280

14000
INR 252,000.00
INR 378,000.00
INR 504,000.00
INR 630,000.00
INR 630,000.00
INR 630,000.00
INR 525,420.00
INR 525,420

INR 705,700.00
INR 705,700

This is the cost sharing example from Chapter 4

These are the cost and contract parameters:

Item

Manufacturer sells for:

Distributor sells for:
Salvage:
Cost Sharing:
Fixed Production Cost:
Variable Production Cost:

Price

INR 62.00
INR 125.00
INR 20.00
INR 0.33
INR 100,000.00
INR 55.00

NOTE: The distributor pays this percentage of the cost.

This is the manufacturer's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
INR 25,750.00
INR 25,750.00
INR 25,750.00
INR 25,750.00
INR 25,750.00
INR 25,750.00
INR 25,750.00

6000
INR 50,900.00
INR 50,900.00
INR 50,900.00
INR 50,900.00
INR 50,900.00
INR 50,900.00
INR 50,900.00

7000
INR 76,050.00
INR 76,050.00
INR 76,050.00
INR 76,050.00
INR 76,050.00
INR 76,050.00
INR 76,050.00

5000
INR 224,250.00
INR 224,250.00
INR 224,250.00
INR 224,250.00
INR 224,250.00
INR 224,250.00
INR 224,250.00

6000
INR 269,100.00
INR 269,100.00
INR 269,100.00
INR 269,100.00
INR 269,100.00
INR 269,100.00
INR 269,100.00

7000
INR 313,950.00
INR 313,950.00
INR 313,950.00
INR 313,950.00
INR 313,950.00
INR 313,950.00
INR 313,950.00

INR 250,000.00

INR 320,000.00

INR 390,000.00

Maximum:

This is the distributor's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

Average Profit

11%
11%
28%
22%
18%
10%

Maximum:

This is the expected (or average) total profit:

Total Average Profit:

Profit vs Order Quantity

INR 800,000.00
INR 700,000.00

INR 700,000.00

Profit (INR)

INR 600,000.00
INR 500,000.00
INR 400,000.00
INR 300,000.00
INR 200,000.00
INR 100,000.00
INR 0.00
5,000

8,000

11,000

Quantity

14,000

8000
INR 101,200.00
INR 101,200.00
INR 101,200.00
INR 101,200.00
INR 101,200.00
INR 101,200.00
INR 101,200.00

Profit for a Given Manufacturing Level

9000
10000
11000
INR 84,350.00 INR 67,500.00 INR 50,650.00
INR 126,350.00 INR 151,500.00 INR 134,650.00
INR 126,350.00 INR 151,500.00 INR 176,650.00
INR 126,350.00 INR 151,500.00 INR 176,650.00
INR 126,350.00 INR 151,500.00 INR 176,650.00
INR 126,350.00 INR 151,500.00 INR 176,650.00
INR 121,730.00 INR 142,260.00 INR 158,170.00

12000
INR 33,800.00
INR 117,800.00
INR 201,800.00
INR 201,800.00
INR 201,800.00
INR 201,800.00
INR 174,080.00

13000
INR 16,950.00
INR 100,950.00
INR 184,950.00
INR 226,950.00
INR 226,950.00
INR 226,950.00
INR 178,230.00

8000
INR 358,800.00
INR 358,800.00
INR 358,800.00
INR 358,800.00
INR 358,800.00
INR 358,800.00
INR 358,800.00

Profit for a Given Manufacturing Level

9000
10000
11000
INR 340,650.00 INR 322,500.00 INR 304,350.00
INR 403,650.00 INR 448,500.00 INR 430,350.00
INR 403,650.00 INR 448,500.00 INR 493,350.00
INR 403,650.00 INR 448,500.00 INR 493,350.00
INR 403,650.00 INR 448,500.00 INR 493,350.00
INR 403,650.00 INR 448,500.00 INR 493,350.00
INR 396,720.00 INR 434,640.00 INR 465,630.00

12000
INR 286,200.00
INR 412,200.00
INR 538,200.00
INR 538,200.00
INR 538,200.00
INR 538,200.00
INR 496,620.00

13000
INR 268,050.00
INR 394,050.00
INR 520,050.00
INR 583,050.00
INR 583,050.00
INR 583,050.00
INR 509,970.00

INR 670,700.00

INR 688,200.00

INR 460,000.00

INR 518,450.00

INR 576,900.00

INR 623,800.00

Dist. P
Mfg. P
Total P.

14,000

17,000

14000
INR 100.00
INR 84,100.00
INR 168,100.00
INR 252,100.00
INR 252,100.00
INR 252,100.00
INR 182,380.00

15000
-INR 16,750.00
INR 67,250.00
INR 151,250.00
INR 235,250.00
INR 277,250.00
INR 277,250.00
INR 177,290.00

16000
-INR 33,600.00
INR 50,400.00
INR 134,400.00
INR 218,400.00
INR 302,400.00
INR 302,400.00
INR 172,200.00

17000
-INR 50,450.00
INR 33,550.00
INR 117,550.00
INR 201,550.00
INR 285,550.00
INR 327,550.00
INR 159,550.00

18000
-INR 67,300.00
INR 16,700.00
INR 100,700.00
INR 184,700.00
INR 268,700.00
INR 352,700.00
INR 146,900.00

15000
INR 231,750.00
INR 357,750.00
INR 483,750.00
INR 609,750.00
INR 672,750.00
INR 672,750.00
INR 522,810.00

16000
INR 213,600.00
INR 339,600.00
INR 465,600.00
INR 591,600.00
INR 717,600.00
INR 717,600.00
INR 522,300.00

17000
INR 195,450.00
INR 321,450.00
INR 447,450.00
INR 573,450.00
INR 699,450.00
INR 762,450.00
INR 510,450.00

18000
INR 177,300.00
INR 303,300.00
INR 429,300.00
INR 555,300.00
INR 681,300.00
INR 807,300.00
INR 498,600.00

INR 700,100.00

INR 694,500.00

INR 670,000.00

INR 645,500.00

INR 182,380

14000
INR 249,900.00
INR 375,900.00
INR 501,900.00
INR 627,900.00
INR 627,900.00
INR 627,900.00
INR 523,320.00
INR 523,320

INR 705,700.00
INR 705,700

This is the global optimal solution in Example 4-12

These are the cost parameters:

Item

Distributor sells for:

Salvage:
Fixed Production Cost:
Variable Production Cost:

Price

INR 125.00
INR 20.00
INR 100,000.00
INR 55.00

This is the system's expected (or average) profit calculations:

Demand

Probability
8000
10000
12000
14000
16000
18000

11%
11%
28%
22%
18%
10%

Average Profit

5000
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00
INR 250,000.00

6000
INR 320,000.00
INR 320,000.00
INR 320,000.00
INR 320,000.00
INR 320,000.00
INR 320,000.00
INR 320,000.00

7000
INR 390,000.00
INR 390,000.00
INR 390,000.00
INR 390,000.00
INR 390,000.00
INR 390,000.00
INR 390,000.00

Maximum:

Profit vs Order Quantity

INR 800,000.00

System Profit (INR)

INR 700,000.00
INR 600,000.00
INR 500,000.00
INR 400,000.00
INR 300,000.00
INR 200,000.00
INR 100,000.00
INR 0.00
5,000

8,000

11,000

Quantity

14,000

8000
INR 460,000.00
INR 460,000.00
INR 460,000.00
INR 460,000.00
INR 460,000.00
INR 460,000.00
INR 460,000.00

17,000

Profit for a Given Manufacturing Level

9000
10000
11000
INR 425,000.00 INR 390,000.00 INR 355,000.00
INR 530,000.00 INR 600,000.00 INR 565,000.00
INR 530,000.00 INR 600,000.00 INR 670,000.00
INR 530,000.00 INR 600,000.00 INR 670,000.00
INR 530,000.00 INR 600,000.00 INR 670,000.00
INR 530,000.00 INR 600,000.00 INR 670,000.00
INR 518,450.00 INR 576,900.00 INR 623,800.00

12000
INR 320,000.00
INR 530,000.00
INR 740,000.00
INR 740,000.00
INR 740,000.00
INR 740,000.00
INR 670,700.00

13000
INR 285,000.00
INR 495,000.00
INR 705,000.00
INR 810,000.00
INR 810,000.00
INR 810,000.00
INR 688,200.00

14000
INR 250,000.00
INR 460,000.00
INR 670,000.00
INR 880,000.00
INR 880,000.00
INR 880,000.00
INR 705,700.00
INR 705,700

15000
16000
17000
18000
INR 215,000.00 INR 180,000.00
INR 145,000.00
INR 110,000.00
INR 425,000.00 INR 390,000.00
INR 355,000.00
INR 320,000.00
INR 635,000.00 INR 600,000.00
INR 565,000.00
INR 530,000.00
INR 845,000.00 INR 810,000.00
INR 775,000.00
INR 740,000.00
INR 950,000.00 INR 1,020,000.00
INR 985,000.00
INR 950,000.00
INR 950,000.00 INR 1,020,000.00 INR 1,090,000.00 INR 1,160,000.00
INR 700,100.00 INR 694,500.00
INR 670,000.00
INR 645,500.00