In this two-stage plant-retailer supply chain, the lead time for the plant to fill retail orders is one week. The plant produces exactly to demand and does not keep inventory. The desired safety stock at the retailer is equal to half-week demand, and future demand is estimated by the average of the past two weeks.
To find the impact on plant production (customer orders) if demand permanently increases from 100 to 110 units per period, we need to consider the change in demand and how it affects the overall supply chain.
1. First, let's calculate the average demand for the past two weeks:
- Week 1 demand: 100 units
- Week 2 demand: 100 units
- Average demand = (100 + 100) / 2 = 100 units
2. With the increase in demand to 110 units per period, let's calculate the new average demand for the past two weeks:
- Week 1 demand: 110 units
- Week 2 demand: 110 units
- Average demand = (110 + 110) / 2 = 110 units
3. Now, let's calculate the new desired safety stock at the retailer, which is equal to half-week demand:
- Half-week demand = 110 / 2 = 55 units
4. Since the plant produces exactly to demand and does not keep inventory, the plant needs to fulfill the retailer's demand plus the safety stock. Therefore, the plant production (customer orders) will be:
- Plant production = Retailer demand + Safety stock
- Plant production = 110 units + 55 units = 165 units
In conclusion, if demand permanently increases from 100 to 110 units per period, the plant production (customer orders) will increase to 165 units. This increase is due to the higher average demand and the corresponding increase in the desired safety stock at the retailer.