Supply Chain Analytics
Dr. Gopal Kumar
[email protected] IIM Raipur
30 Sept 2024
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 1/24
Supply chain analytics
Prescriptive
analytics Advanced analytics
Descriptive Predictive
analytics analytics
Diagnostic
analytics
Business Intelligence
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 2/24
Supply chain analytics
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 3/24
Supply chain analytics
Overview of descriptive and optimization models to support supply chain
decision making
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 4/24
Supply chain analytics
Digital Planning
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 5/24
Retail analytics (Ordering policy)
A retail store must decide how many of t-shirt to order.
Each t-shirt costs the store ₹500 and sells for ₹800. At the
end, all unsold t-shirt will be returned to the factory for a
refund of ₹100 per t-shirt. The store believes that the
number of t-shirt it can sell will be 150 units.
How much inventory to hold?
How much order should be placed?
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 6/24
Retail analytics (Ordering policy)
A retail store must decide how many t-shirt to order. Each
t-shirt costs the store ₹500 and sells for ₹800. After the
end of the year, all unsold t-shirt will be returned to the
factory for a refund of ₹100 per t-shirt. The store believes
that the number of t-shirt it can sell by the end of the
year follows the probability distribution shown below.
The store wants to take decision on how many t-shirt to
order.
Demand Probability
100 0.15
Probability Distribution of Demand 150 0.20
200 0.20
250 0.25
300 0.15
350 0.05
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 7/24
Retail analytics (Ordering policy)
Case 1
Probability Distribution of Demand
Demand Probability
100 0.15
150 0.20
200 0.20
250 0.25
300 0.15
350 0.05
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 8/24
Retail analytics (Ordering policy)
Case 1
Probability Distribution of Demand
Demand Probability
100 0.15
150 0.20
200 0.20
250 0.25
300 0.15
350 0.05
Probability that Demand distribution
demand will be Demand Probability
0.00 100 0.15
less than 200
0.15 150 0.20
0.35 200 0.20
0.55 250 0.25
0.80 300 0.15
0.95 350 0.05
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 9/24
Retail analytics (Ordering policy)
Case 1
Probability Distribution of Demand
95% confident
that profit will be
between LL and UL
95%
𝜇
(𝑀𝑒𝑎𝑛)
𝐿𝐿 U𝐿
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 10/24
Retail analytics (Ordering policy)
Case 1
For 95% Confidence Interval
1.96𝜎
𝐿𝑜𝑤𝑒𝑟 𝑙𝑖𝑚𝑖𝑡 = 𝜇 −
𝑛
1.96𝜎
Upper 𝑙𝑖𝑚𝑖𝑡 = 𝜇 +
𝑛
(-1.96) (1.96)
L
𝐿 = 𝑈𝐿 − 𝐿𝐿
16×(𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛)2
Sample size, n =
𝐿2
Where 𝜇 is the mean, 𝜎 is the standard deviation, and
L is the length of confidence interval
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 11/24
Retail analytics (Ordering policy)
Case 1
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 12/24
Retail analytics (Ordering policy)
Case 1
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 13/24
Retail analytics (Ordering policy)
Case 1
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 14/24
Ordering policy
Case 2
If the retail store estimates a normal probability
distribution for demand, where mean and
standard deviation of demand are 225 and 50
respectively. The company is interested to find out
the best possible order quantity. Help them to
take decision.
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 15/24
Retail analytics (Ordering policy)
Case 2
What if demand follows normal distribution?
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 16/24
Ordering policy
Case 2
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 17/24
Ordering policy
Case 3
If the retail store estimates a triangular probability
distribution for demand, where the minimum,
most likely, and maximum values of demand are
100, 250, and 400, respectively. The company is
interested to find out the best possible order
quantity. Help them to take decision.
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 18/24
Ordering policy
Case 3
For order quantity 250
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 19/24
Ordering policy
Case 4
If the retail plans for two different substitute
products. The store estimates that their demand
follows a normal probability distribution wherein
the mean and standard deviation of the
distributions are 250 and 75 for product 1 and 200
and 50 for product 2. The correlation between the
demand of the two products is -0.95.
The company is interested Cost data
to find out the best possible Unit cost1 ₹ 500.00
Unit cost2 ₹ 350.00
order quantity. Help them to Unit price1 ₹ 800.00
take decision. Unit price2 ₹ 500.00
Sale price ₹ 200.00
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 20/24
Ordering policy
Case 4
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 21/24
Ordering policy
Case 4
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 22/24
Multiple uncertain inputs
Case 5 (Exercise)
What if demand, supply, and sale are uncertain?
Case 1
1. If demand follows normal distribution with mean of 250 and
standard deviation of 70.
2. Supply or order quantity also follows triangular distribution
with minimum, most likely, and maximum value as 125, 200,
and 250 respectively.
3. If supplier is not able to supply ordered quantity, the suppler
offers a discount of Rs. 100 on unit price.
4. If all items are not sold at regular price, retailer sales leftover
items at discounted price. Suppose demand during sales period
also follows triangular distribution with Cost data
Unit cost1 ₹ 500.00
minimum, most likely, and maximum value as Unit cost2 ₹ 400.00
0, 50, and 100 respectively. Unit price ₹ 800.00
Sale price ₹ 300.00
Gopal Kumar (IIM Raipur) SCMA 30 Sept 2024 23/24
.
Thanks!
Gopal Kumar (IIM Raipur) Supply Chain Analytics 30 Sept 2024 24/24
