A buyer for a large department store chain must place orders with an athletic shoe manufacturer six months prior to the time the shoes will be sold in the department stores. The buyer must decide on November 1 how many pairs of the manufacturer's newest model of tennis shoes to order for sale during the coming summer season. Assume that each pair of this new brand of tennis shoes costs the department store chain $65 per pair. Furthermore, assume that each pair of these shoes can then be sold to the chain's customers for $85 per pair. Any pairs of these shoes remaining unsold at the end of the summer season will be sold in a closeout sale next fall for $55 each. The probability distribution of consumer demand for these tennis shoes during the coming summer season has been assessed by market research specialists and is provided in the file P09_35.xlsx. Finally, assume that the department store chain must purchase these tennis shoes from the manufacturer in lots of 100 pairs.a. Identify the strategy that maximizes the department store chain's expected profit earned by purchasing and subsequently selling pairs of the new tennis shoes. Is a decision tree really necessary? If so, what does it add to the analysis? If not, why not? **Educational Website Content**Title: Maximizing Profit in the Retail Industry: A Case Study on Ordering and Selling New Product Lines---**Scenario Overview:**A buyer for a large department store chain is tasked with placing orders for a new model of tennis shoes from an athletic shoe manufacturer. This order must be placed six months ahead of the retail selling season. The buyer makes the decision on November 1st regarding the number of pairs to order for the upcoming summer season.**Cost Analysis:**- **Purchase Cost:** Each pair of the new tennis shoes costs the department store $45.- **Selling Price:** These shoes are sold to customers at $70 per pair.- **Closeout Sale:** Unsold shoes at the end of the summer can be sold for $35 per pair.**Demand Forecasting:**The probability distribution of consumer demand has been assessed by market research specialists. This data is documented in the file P09_35.xlsx.**Order Quantity Requirement:**Orders must be placed in lots of 100 pairs.---**Discussion Question:****a. Identifying Optimal Strategy:**Develop a strategy that maximizes the department store chain's expected profit from purchasing and selling the new tennis shoes. Consider whether a decision tree is necessary for this analysis. If a decision tree is used, detail how it enhances the decision-making process.

πij= Revenue from regular price +Revenue from closeoutprice-cost of purchase = [$70×100×min[pi,dj]+[$35×100×max[0,pi,-dj[]-[pi×100×45]For example , if we purchase 400 shoes and demand is 200,then p=4 and d=2πij= [$70×100×min[pi,dj]+[$35×100×max[0,pi,-dj[]-[pi×100×45] = [$70×1002]+[$35×100×2]-[4×100×45] = $14000+$7000-$18000 = $3000

Answered: strategy that maximizes the department…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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A buyer for a large department store chain must place orders with an athletic shoe manufacturer six months prior to the time the shoes will be sold in the department stores. The buyer must decide on November 1 how many pairs of the manufacturer's newest model of tennis shoes to order for sale during the coming summer season. Assume that each pair of this new brand of tennis shoes costs the department store chain $65 per pair. Furthermore, assume that each pair of these shoes can then be sold to the chain's customers for $85 per pair. Any pairs of these shoes remaining unsold at the end of the summer season will be sold in a closeout sale next fall for $55 each. The probability distribution of consumer demand for these tennis shoes during the coming summer season has been assessed by market research specialists and is provided in the file P09_35.xlsx. Finally, assume that the department store chain must purchase these tennis shoes from the manufacturer in lots of 100 pairs.

a. Identify the strategy that maximizes the department store chain's expected profit earned by purchasing and subsequently selling pairs of the new tennis shoes. Is a decision tree really necessary? If so, what does it add to the analysis? If not, why not?

**Educational Website Content**

Title: Maximizing Profit in the Retail Industry: A Case Study on Ordering and Selling New Product Lines

---

**Scenario Overview:**

A buyer for a large department store chain is tasked with placing orders for a new model of tennis shoes from an athletic shoe manufacturer. This order must be placed six months ahead of the retail selling season. The buyer makes the decision on November 1st regarding the number of pairs to order for the upcoming summer season.

**Cost Analysis:**

- **Purchase Cost:** Each pair of the new tennis shoes costs the department store $45.
- **Selling Price:** These shoes are sold to customers at $70 per pair.
- **Closeout Sale:** Unsold shoes at the end of the summer can be sold for $35 per pair.

**Demand Forecasting:**

The probability distribution of consumer demand has been assessed by market research specialists. This data is documented in the file P09_35.xlsx.

**Order Quantity Requirement:**

Orders must be placed in lots of 100 pairs.

---

**Discussion Question:**

**a. Identifying Optimal Strategy:**

Develop a strategy that maximizes the department store chain's expected profit from purchasing and selling the new tennis shoes. Consider whether a decision tree is necessary for this analysis. If a decision tree is used, detail how it enhances the decision-making process.

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