Compute the buy-back price b such that ryan orders 400 units

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Reference no: EM131877698

In the next week, Ryan Ltd. will sell cashmere jerseys during the local market in Madeira (OH). Ryan will sell the jerseys at $80. Suppose the following table shows the probability of jerseys sales quantities.

Probability	0.05	0.1	0.3	0.2	0.2	0.15
Demand	100	200	300	400	500	600

The manufacturer of the jerseys, Scott Ltd., sells the jerseys at $40 each. Based on the contract, Scott will buy back any left over. The buy-back price is still negotiable. Scott has calculated that his optimal production order size is 400 units, therefore he would like to set the buy-back price so that Ryan orders exactly 400 units.

Compute the buy-back price b such that Ryan orders 400 units.

The unit production cost of Scott (the Manufacturer) is $20.

What buy-back price should the supply chain partners choose in order to maximize the whole supply chain profit (= coordinated supply chain)?

Reference no: EM131877698

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