Determining the Optimum Level of Product Availability (Coursework Sample)
Using the Sportmart DemoPreview the document, the manager decided to conduct market research and, based on the additional information she obtained from the research, she believes that the standard deviation of demand can be reduced to 50 instead of 100. What is the impact of profitability? What happens to profitability if the standard deviation of demand increases to 150? What did you learn from this exercise?
Note: Just change the Standard Deviation directly in Excel from 100 to 50 and then 150 to see the impact on profitability.
Determining the Optimum Level of Product Availability
The Impact of Standard Deviation on Profitability
A decrease in the standard deviation from 100 to 50 causes a positive impact on profitability. The expected profit holding the mean demand constant at 350 rises by $3,391 from $45,718 to $49,109. With the decrease in the standard deviation, the expected overstock reduces by half the units from 124 to 62 and the understock reducing from 6 units to 3 units due to the rise in demand. Conversely, an increase in the deviation from 100 to 150 greatly cuts down on profitability. The profit reduces by the same am
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