Wine Ordering problem Kramer is a catalog retailer that offers a large collection of wines to its customers, who receive a catalog every two months...

Wine Ordering problem

Kramer is a catalog retailer that offers a large collection of wines to its customers, who receive a

catalog every two months from the company. For the wines to be listed in a catalog, Kramer has

to forecast the demand several months before publishing the catalog and then place orders to the

growers. The purchase price Kramer pays a grower is 50% of the list price. The grower is

responsible for the cost of shipping wines to Kramer's warehouse. For a wine that cannot be sold

during the regular catalog season, it is discounted by 40% of its retail price in future catalogs and it

takes on average an additional 8 months before the wine can be sold. The warehousing operating

cost is 0.1 Euro per month per bottle. The cost of capital of the company is 20% per year. If a

wine is sold during the regular catalog season, the time it spends in warehousing is very short and

the inventory holding cost can be assumed to be zero. Regardless of whether a wine is sold during

the regular catalog season or not, Kramer pays 1 Euro per bottle for shipping and handling to

fulfill customer orders. When stock-out occurs, the unsatisfied demand will be lost because it is

not possible for Kramer to re-order during the catalog season. Kramer is planning for the next

catalog. After analyzing the past data, Kramar found that the mean and the standard deviation of

the A/F ratios from the past are respectively 0.86 and 0.30. For the wine Chinon that will be listed

in the next catalog, the forecast is 10,000 bottles and its list price is 10 Euro. Suppose Kramer

would like to use a Normal distribution to approximate the demand uncertainty of Chinon.

b. How many bottles of Chinon should Kramer order from the grower?