Wills Lifestyle

Group 1, Section 2

1811432 Vinodhkumar S L
1811429 Karthick Selvan
1811403 Venkatesh K
1811393 Subashree Venkatesan
1811250 Pradeep Kumar V B
1811011 Anish Das
Given
For all analysis assume that the margin associated with internal production is 30% (of
cost) per style and the average cost of overstocking is 10% (of cost). Thus, a shirt that
retails at Rs. 1300 has a cost of Rs. 1000 and the cost of overstocking of Rs. 100. Use the
Demand data in Exhibit 7.
Using the given data, Cost of overstocking and understocking have been calculated for each
style.

3rd
Sale Party
Price LRBD Cost Salvage
(R ) Cost (W) Price (S) Mean Std Dev Cu Co
Sun Orange 1400 1077 1027 924 3680 2097 373 103
SS Linen 1300 1000 950 855 3551 2276 350 95
Sunray Stripe 2000 1538 1488 1340 1457 775 512 149
Regent Bias 2000 1538 1488 1340 1065 610 512 149
Italian Dobby 1500 1154 1104 993 3441 1115 396 110
V Seamed 2000 1538 1488 1340 1644 911 512 149
Delicate
Dobby 1600 1231 1181 1063 2316 697 419 118
C Stretch 1700 1308 1258 1132 1528 338 442 126
Tue Purples 2000 1538 1488 1340 1569 747 512 149
Pristine CD 1500 1154 1104 993 3795 1982 396 110

Q1. Consider the case when LRBD sources from a third party (as was the case prior to
2003). The third party has a unit cost which is Rs. 50 per style lower than the cost implied
in Exhibit 7. The retailer has to place a single order (before the selling season, obviously)
and a minimum lot of size of 2000 units per style. What would be the order size for each
of the style? Assume Wills Lifestyle will place orders for all style (it cannot be zero for
some style).
Using the cost of overstocking and understocking, cycle service level (CSL) has been
calculated for each style. Using CSL and demand distribution of each style, optimum order
quantity (Q*) for each style has been calculated. If Q* for a style is less than 2000 units, the
order has to be placed for 2000 units.
 Is Q* Placed
greater Order
than Quantity
CSL* Q* 2000? (Q)
Sun Orange 0.78 5329 Yes 5329
SS Linen 0.79 5359 Yes 5359
Sunray Stripe 0.77 2041 Yes 2041
Regent Bias 0.77 1525 No 2000
Italian Dobby 0.78 4310 Yes 4310
V Seamed 0.77 2331 Yes 2331
Delicate Dobby 0.78 2855 Yes 2855
C Stretch 0.78 1787 No 2000
Tue Purples 0.77 2132 Yes 2132
Pristine CD 0.78 5339 Yes 5339

What happens if the supplier only offers a total capacity of 25,000 units but there is no
minimum lot size per style?
Under the total capacity constraint of 25000 units, to find out optimum order quantity has been
calculated using 2 approaches.
Approach 1 – Using expected marginal profit
Expected marginal profit for each style can be calculated using the below function.
Expected marginal profit of ith item is
(Retail Price * Pr (D>= Qi) + (Salvage price * Pr (D < Qi) - Wi
The final allocation of capacity among different styles has been obtained using below iteration.
1. Set initial capacity = 0 for all styles
2. Calculate the expected marginal profit of each style
3. Increment the capacity allocation by 1 unit for the style with maximum expected
marginal profit
4. Repeat till total capacity allocation is equal to 25000 units.
The solution obtained is given below:
Sun SS Sunray Regent Italian V Delicate C Tue Pristine
Orange Linen Stripe Bias Dobby Seamed Dobby Stretch Purples CD
3742 3524 1611 1186 3515 1824 2385 1571 1717 3925

Approach 2 – Using the expected total profit

By solving an optimization problem for the expected total profit, the capacity allocated for each
style has been calculated.
Objective function
Maximize the sum of expected profits of each style
 Constraints
1. Capacity constraint – total capacity should be less than or equal to 25000 units
2. Capacity allotted for each style should be a non-negative integer.

Expected profit for each style has been calculated using the below function
(Retail price * Expected sales) + (salvage price * Expected Leftover inventory) –
Purchase cost
Using excel solver, optimization problem has been solved to obtain below solution
Sun SS Sunray Regent Italian V Delicate C Tue Pristine
Orange Linen Stripe Bias Dobby Seamed Dobby Stretch Purples CD
3742 3524 1611 1186 3514 1824 2385 1571 1716 3927

Q2. Now consider the process post-2003. LRBD divides the sales period or season (for
example, summer selling season) into six sub-periods and arranges for multiple
replenishments after bringing in an initial order quantity. Assume that each sub-period
averages about one-sixth of the season’s demand. What initial order quantity (for each
style) should LRBD place (and in successive order periods)? The minimum lot size is 800
units per style.
Mean demand and standard deviation for each subperiod have been calculated as below.
Sub-period demand = Season Demand/6
Sub-period Std Deviation = Season Std Deviation/ (Sqrt 6)
Using CSL calculated from Question 1 and the new demand distribution calculated above,
optimum order quantity (Q*) for each style has been calculated. If Q* for a style is less than
800 units, the order must be placed for 800 units.
For the first sub-period which is Q1, quantity ordered is equal to Maximum of Q*, 800. For
every subsequent sub-period (Q2 to Q6), we calculate the expected left-over inventory and
expected lost sales for the previous period and then derive the next sub-period order from that.
For Example, order quantity for sub-period 2 is derived based on quantity supposed to be
ordered (which is Max (Q*, 800) = Q1), E(LOI) of period 1 and E(LS) of period 1.
Qi+1 = Max [(Qi- E(LOI) for period i + E(LS) for period i), 800]
 Q2 Q3 Q4 Q5 Q6
New New SD Q1 Max (Q1 Max (Q1 Max (Q1 Max (Q1 Max (Q1
Mean (Full (Full Max (Q*, + E(LOI1)- + E(LOI2)- + E(LOI3)- + E(LOI4)- + E(LOI5)-
season season SD Q* 800) E(LS1), E(LS2), E(LS3), E(LS4), E(LS5),
mean/6) / Sqrt 6) 800) 800) 800) 800) 800)
613 856 1286 1286 800 1100 800 1100 800
592 929 1330 1330 800 1122 800 1122 800
243 316 481 800 800 800 800 800 800
178 249 365 800 800 800 800 800 800
574 455 928 928 800 800 800 800 800
274 372 554 800 800 800 800 800 800
386 285 606 800 800 800 800 800 800
255 138 361 800 800 800 800 800 800
262 305 491 800 800 800 800 800 800
633 809 1263 1263 800 1096 800 1096 800