Answer questions 7, 9b, 9c, 10a, 10b and 10c at the end of Chapter 4 in the textbook. 7. In this...

Answer questions 7, 9b, 9c, 10a, 10b and 10c at the end of Chapter 4 in the textbook.

7. In this chapter, we discussed two classes of supply contracts for strategic components, one of which is appropriate when the manufacturer manufactures goods after the distributor orders them, but the distributor orders before he observes demand, while the other is appropriate when the manufacturer manufactures goods before the distributor orders them, but the distributor orders after he observes demand. Discus another possible situation, and describe how supply contracts might be beneficial to the supply chain in this new situation.

9 b. Suppose the manufacturer is make-to-order; that is, the timing of events is as follows:

-the distributor orders before it receives demand from end customer

-the manufacturer produces the amount ordered by the distributor

-customer demand is observed

Suppose the manufacturer sells to the distributor at $40/unit, how much will the distributor order? What is the expected profit for the manufacturer and distributor?

Find an option contract such that both the manufacturer and distributor enjoy a higher expected profit than determined above. What is the expected profit for the manufacturer and the distributor?

9 c. Suppose the manufacturer is make-to-stock; that is, the timing of events is as follows:

-the manufacturer produces a certain amount

-the distributor observes demand

-the distributor orders from the manufacturer

Using the same wholesale price contact as in 9 b, calculate the production/inventory level of the manufacturer. What is the expected profit for the manufacturer and distributor? Compare the results with the results from 9 b.

Find a cost-sharing contract such that both the manufacturer and distributor enjoy a higher expected profit than that above, and calculate their expected profits.

10 a. Using the data of question 9, suppose the manufacturer has an inflated demand forecast as follows:

QuantityProbability

2,200 5%

2,300 6%

2,400 10%

2,500 17%

2,600 30%

2,700 17%

2,800 12%

2,900 3%

a. Suppose the manufacturer is make to order (timing of events in 9 b). Using the contract in 9 b, find the order quantity and expected profits of the distributor and the manufacturer. Compare the results with the calculations from 9 b.

b. Suppose the manufacturer is make-to-stock (timing of events in 9 c). Using your contract in 9 c, find the production quantity, expected profits of the manufacturer and of the distributor. Compare the results with the calculations from 9 c.

c. If you are the distributor and you have the choice of revealing the true demand forecast or inflated demand forecast to the manufacturer, what will you do in each case? Explain.