Potential Sales for SSI
SSI would like to determine its potential sales for the first year on the basis of the information in question 3. However, there is some concern that the estimate of average retail sales is too high. SSI assumes only 40% of the participating retailers will actually achieve the average sales and reorders (this group is designated as high performers). Twenty percent of the retailers are expected to have medium performance success and will only sell /reorder 75 percent of the average suggested order. Low-performing retailers represent the remaining 40 percent and will achieve half the sale/reorder expected on average.
- Calculate the orders ( separate initial and reorder quantities) for the 6-month trial period if 45 percent of retailers exclusively order/reorder large packs and the remaining retailers exclusively order/reorder small packs.
- Calculate the second 6 months accounting for the dropout. (Round if necessary.)
Assume the “performer” ratios remain the same after the trial period (i.e. 40 percent are average performers, 20 percent sell 75 75 percent of the average, and 40 percent sell 50 percent of the average).
To calculate the orders for the 6-month trial period, we’ll need to break down the calculation based on the different performance levels and pack sizes. Let’s start with the initial orders:
Step 1: Calculate the initial orders for high performers (40% of retailers):
- High performers achieve the average sales and reorders.
- Let’s assume the average suggested order is “X” (the value given in question 3).
Initial order quantity for high performers (large packs) = 40% of 45% of X Initial order quantity for high performers (small packs) = 40% of 55% of X
Step 2: Calculate the initial orders for medium performers (20% of retailers):
- Medium performers sell/reorder 75% of the average suggested order.
Initial order quantity for medium performers (large packs) = 20% of 45% of 0.75X Initial order quantity for medium performers (small packs) = 20% of 55% of 0.75X
Step 3: Calculate the initial orders for low performers (40% of retailers):
- Low performers achieve half the sale/reorder expected on average.
Initial order quantity for low performers (large packs) = 40% of 45% of 0.5X Initial order quantity for low performers (small packs) = 40% of 55% of 0.5X
Now, let’s calculate the reorder quantities for the 6-month trial period. We’ll assume that each category of retailers (high, medium, low performers) will reorder their initial orders at the end of the 6-month period.
Reorder quantities will be the same as the initial order quantities for each category.
Next, we’ll calculate the second 6 months, accounting for the dropout. The dropout rate is not explicitly given, so let’s assume it to be a certain percentage (for example, 10%).
Step 4: Calculate the dropout rate for each category:
- Let “D” be the dropout rate (10% in this example).
Dropout for high performers = 40% of D Dropout for medium performers = 20% of D Dropout for low performers = 40% of D
Step 5: Calculate the remaining retailers for each category after dropout:
- Remaining retailers = Initial retailers – Dropout
Step 6: Calculate the second 6-month reorder quantities for each category:
- The reorder quantities for each category will be the same as calculated earlier (since the performer ratios remain the same).
Let’s put all the calculations together:
- Calculate the initial orders for the 6-month trial period:
- Initial order quantity for high performers (large packs) = 0.40 * 0.45 * X
- Initial order quantity for high performers (small packs) = 0.40 * 0.55 * X
- Initial order quantity for medium performers (large packs) = 0.20 * 0.45 * 0.75 * X
- Initial order quantity for medium performers (small packs) = 0.20 * 0.55 * 0.75 * X
- Initial order quantity for low performers (large packs) = 0.40 * 0.45 * 0.5 * X
- Initial order quantity for low performers (small packs) = 0.40 * 0.55 * 0.5 * X
- Calculate the reorder quantities for the 6-month trial period:
- Reorder quantity for high performers (large packs) = 0.40 * 0.45 * X
- Reorder quantity for high performers (small packs) = 0.40 * 0.55 * X
- Reorder quantity for medium performers (large packs) = 0.20 * 0.45 * 0.75 * X
- Reorder quantity for medium performers (small packs) = 0.20 * 0.55 * 0.75 * X
- Reorder quantity for low performers (large packs) = 0.40 * 0.45 * 0.5 * X
- Reorder quantity for low performers (small packs) = 0.40 * 0.55 * 0.5 * X
