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Laura Lene owns a flower stand near the new beautiful Denver International Airport. She buys her flowers from a wholesaler at $0.25 per flower and sells them for $0.50 per flower. Laura wonders what is the optimal number of flowers to order each day? Based on looking at here past 3 years of history, she has found that demand can be approximated by a normal distribution with a mean of 100 and a standard deviation of 20. When she ends the day with more flowers than customers, she can sell all the leftovers for $0.05 per flower. Conversely, when she has more customers than flowers, she estimates that there is some lost goodwill in addition to the lost profit on the potential sale of $0.25. Laura estimates lost goodwill costs her the next two sales opportunities (i.e., dissatisfied customers will go to the competitor the next two times they want to buy flowers, but will then try Laura again). (a) Use a spreadsheet simulation model with 1,000 iterations to determine the optimal number of flowers to order each day.

Operation Management, Management Studies

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