Answer questions 7, 9b, 9c, 10a, 10b and 10c at the end of Chapter 4 in the textbook.

7. In this chapter, we discussed two classes of supply contracts for strategic components, one of which is appropriate when the manufacturer manufactures goods after the distributor orders them, but the distributor orders before he observes demand, while the other is appropriate when the manufacturer manufactures goods before the distributor orders them, but the distributor orders after he observes demand. Discuss another possible situation, and describe how supply contracts might be beneficial to the supply chain in this new situation.

9.1 Consider the following demand scenario: Suppose the manufacturer produces at a cost of $20/unit. The distributor sells to end customers for $50/unit during season, unsold units are sold for $10/unit after season. _______________1 Prepared by Stephen Shum. Page 141a. What is the system optimal production quantity and expected profit under global optimization? b. Suppose the manufacturer is make-to-order; that is, the timing of events is as follows: • The distributor orders before it receives demand from end customers. • The manufacturer produces the amount ordered by the distributor. • Customer demand is observed. i. Suppose the manufacturer sells to the distributor at $40/unit, how much will the distributor order? What is the expected profit for the manufacturer and distributor? ii. Find an option contract such that both the manufacturer and distributor enjoy a higher expected profit than (b)(i). What is the expected profit for the manufacturer and the distributor? c. Suppose the manufacturer is make-to-stock; that is, the timing of events is as follows: • The manufacturer produces a certain amount. • The distributor observes demand. • The distributor orders from the manufacturer. i. Using the same wholesale price contract as part (b)(i), calculate the production/inventory level of the manufacturer. What is the expected profit for the manufacturer and distributor? Compare your results with part (b)(i). ii. Find a cost-sharing contract such that both the manufacturer and distributor enjoy a higher expected profit that that in (c)(i), and calculate their expected profits.

10.2 Using the data of Question 9, suppose the manufacturer has an inflated demand forecast as follows: a. Suppose the manufacturer is make-to-order (timing of events as in 9(b)). Using your contract in Question 9(b)(ii), find the order quantity, and expected profits of the distributor and of the manufacturer. Compare your answers with 9(b)(ii). b. Suppose the manufacturer is make-to-stock (timing of events as in 9(c)). Using your contract in Question 9(c)(ii), find the production quantity, expected profits of the manufacturer and of the distributor. Compare your answers with 9(c)(ii). c. If you are the distributor and you have the choice of revealing the true demand forecast or inflated demand forecast to the manufacturer, what will you do in each case? Explain.

Attached document with questions.