In order to get toys in its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children’s toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to very high levels and large profits can be realized. On the other hand, new toys can also flop, leaving Specialty stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet expected sales demand. If too few are purchased,
In order to get toys in its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children’s toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to very high levels and large profits can be realized. On the other hand, new toys can also flop, leaving Specialty stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet expected sales demand. If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales.
1. Use the sales forecaster’s prediction to describe a
2. Compute the probability of a stock-out for the order quantities suggested by members of the management team.
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