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Sales of watchesTeam 7
Chua Sock Yii | Kum Wei Chuen | Lau Hui Xian Lydia | Teo Wan Yu | Tho Be
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Background Information
• Wei Chuen opened a watch shop at Bugis street 3 months ag
• Been suffering losses for the past 2 months
• Recently, his wife has been very unhappy because of this iss
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A typical day at Bugis
street…
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爱 走* *
**
If you love me, don’tleave…
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Bao Ga Liao*
* All-in-on
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Options Available
1 Remain as he is 2Rent storage f
addition to his
3
Set up onlinewebsite & shut
down brick-and-
mortar shop
4
Wind up his wbusiness and w
an employer a
$1000/mth
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1 Remain as he is
o Currently stores watches in his shop (can store up to 200
oMaximum monthly profit attained when all 200 watches s
o Can return unsold watches to supplier at end of month
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1 Remain as he is
Cost of running the shop:
Rents/Utilities $2800/month
Part-Time Labour(Uniform distribution) ~U($750-$1000)/mon
Cost of watch $10/watch
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1 Remain as he is
Current demand faced by the shop:
o demand for watches (X) is normally distributed ; X~ N(210, 502
Brand Probability that brand is popular Price of wat
A 2% 24
B 3% 26
C 15% 28
D 80% 30
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1 Remain as he is
Profits for shop under option 1:
Profits = Qty of watches sold x (Price – cost)
- Rental/utilities cost- Labour cost
+ No. of watches not sold x Refund
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2Rent storage facility in
addition to his shop
Details of option 2:
o Allows Wei Chuen to restock the watches in his shop as and when he like
o Can sell more than 200 watches/month if demand is high
o Storage facility keeps 100 watches per 100 square feet
o $100/sqft (rental goes in multiples of 1 sqft)
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2Rent storage facility in
addition to his shop
Profits of shop under option 2:
Profits = Qty of watches sold x (Price – cost)
- Rental/utilities cost- Labour cost
- Storage Facility cost
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3Set up online website &
shut down brick-and-
mortar shop
Details of option 3:
o no longer constrained by the maximum quantity of wa
can sell
oOrder as many as he want and store with e-commerce
firm, but can only obtain partial refund for unsold watc
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Cost of online shop:
3Set up online website &
shut down brick-and-
mortar shop
Web domain cost $40/month
Commission to website operator 15% of monthly sales rev
Cost of watch $18/watch
Refund per watch $6/watch
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3Set up online website &
shut down brick-and-
mortar shop
Demand faced by online shop:
o Demand for watches (Y) normally distributed ; Y~N(230, 402)
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3Set up online website &
shut down brick-and-
mortar shop
Profits of shop under option 3:
Profits = Quantity of Watches sold x Price – No. of watches ordered x Cost
+ No. of watches not sold x refund
– 0.15 x Quantity of Watches sold x Price
– Web domain Costs
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4Wind up his watch business and
work for an employer at
$1000/mth
Details of option 4:
o Shut down his business and work for an employer at$1k per month.
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Decision Criteria
1. Choose the option that will have the highest profit and comp
$1k/month
2. As long as best option’s profit has at least 80% probability th
$1k, he will choose that option
3. If the probability of exceeding the expected $1000 of profits
20%, he will take the risk adverse option to work as a watch
instead.
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Assumptions made
1. Assumed that the monthly salary as a watch sales person i
$1,000 per month, without additional bonuses.
2. Online market demand is independent from the shop’s dema
3. Assume that Wei Chuen will order 200 watches per month f
shop.
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Results of Simulation
Option 1: Remainas he is
Option 2: Storagefacility in addition
to his current store
Optioan on
Expected profit -$90.6705 $308.992 S1
Standard deviation ofprofits
$491.401701
$765.106232
$
Probability of profit >
$1000
0 365/2000 16
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Results of Simulation
0
200
400
600
800
1000
1200
1400
1600
1800
0 100 200 300 400 500 600 700 800 900 1000 1100 1200 More
F
r e q u e n c y
Profits
Histogram of profits of online shop
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Results of Simulation
Optimal result : ONLINE STORE
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Sensitivity Analysis
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Happy ending! ~