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( (4) OPTIMAL CUSTOMER SERVICE Suppose a seller has following order profile - 100 units per order (average) - 25,000 orders per year - Pre-tax profit per unit is $100 - Pre-tax profit per order is $10.000 - Invoice deduction per order is $300 - Percentage of incomplete orders back ordered is 80% - Back order costs per order - Administrative: $25,rehandling: 850, redelivery: $100 Refer to the following table and cash flow lost cost model: a) Please find the Cash Flow Lost (Stockout Costs) at different customer service level: Cek How Lost (Number of incomplete Orders Back Ordered x Back Ondersi per Onder) + (Number of incomplete Orders Cancelled to as Profit per Onder+ (Number of incomplete Orders Back Ordered Invoice Deduction per Order This would the following calculation Cash Maw Lost * 2.000 x 70) 51251 + IC2025.000 x 30) 510.000 + 20% X 25,000 $20-$16.4.300 Service level % Stockout Costs S Inventory investments 50 Fill in here 5 million 60 Fill in here 8.6 million 70 Fill in here 12.2 million 80 Fill in here 15.8 million 190 Fill in here 19.4 million 95 Fill in here 23 million b) Find the optimal customer service level offered by the seller (hint: you could plot the stock out costs and inventory investment in the same graph to determine) c) Please comment on such an economics approach to customer service? Does it mean that it is rational to make the customer unhappy? (50 words) ( (4) OPTIMAL CUSTOMER SERVICE Suppose a seller has following order profile - 100 units per order (average) - 25,000 orders per year - Pre-tax profit per unit is $100 - Pre-tax profit per order is $10.000 - Invoice deduction per order is $300 - Percentage of incomplete orders back ordered is 80% - Back order costs per order - Administrative: $25,rehandling: 850, redelivery: $100 Refer to the following table and cash flow lost cost model: a) Please find the Cash Flow Lost (Stockout Costs) at different customer service level: Cek How Lost (Number of incomplete Orders Back Ordered x Back Ondersi per Onder) + (Number of incomplete Orders Cancelled to as Profit per Onder+ (Number of incomplete Orders Back Ordered Invoice Deduction per Order This would the following calculation Cash Maw Lost * 2.000 x 70) 51251 + IC2025.000 x 30) 510.000 + 20% X 25,000 $20-$16.4.300 Service level % Stockout Costs S Inventory investments 50 Fill in here 5 million 60 Fill in here 8.6 million 70 Fill in here 12.2 million 80 Fill in here 15.8 million 190 Fill in here 19.4 million 95 Fill in here 23 million b) Find the optimal customer service level offered by the seller (hint: you could plot the stock out costs and inventory investment in the same graph to determine) c) Please comment on such an economics approach to customer service? Does it mean that it is rational to make the customer unhappy? (50 words)
