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)?