Supply Contracts: Case Study 1. Example: Demand for a movie newly released video cassette typically starts high and decreases rapidly Peak demand last about 10 weeks Blockbuster purchases a copy from a studio for $65 and rent for $3
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Supply Contract can include the following:
FIGURE 4-1: The retailer’s expected profit
= $985,700 (= $513,800 + $471,900)
FIGURE 4-2: Buy-back contract
= $985,700 (= $504,325+$481,375).
FIGURE 4-3: Revenue-sharing contract
Variable Production Cost=$35
Supply Contracts ― Global Optimization
Wholesale Price =$80
FIGURE 4-4: Profit using global optimization strategy
Manufacturer produces ski-jackets prior to receiving distributor orders
The distributorsales ski-jackets to retailers for $125 per unit.
FIGURE 4-5: Manufacturer’s expected profit
= $670,000 (= $160,400 + $510,300)
FIGURE 4-6: Manufacturer’s average profit (pay-back contract)
FIGURE 4-7: Distributor’s average profit (pay-back contract)
Same as the profit under pay-back contracts
FIGURE 4-8: Manufacturer’s average profit (cost-sharing contract)
FIGURE 4-9: Distributor’s average profit (cost-sharing contract)
Same profit as under pay-back and cost sharing contracts
FIGURE 4-10: Global optimization