Inventory management


Problem Guidelines

Because using spreadsheet software is a basic business skill, the assignments are intended to give you practice in structuring problems as well as simply finding the answers. All problems must be solved using Excel formulas to receive credit. If, for example, you solve a problem on paper and then copy the results to Excel, you will receive no credit for that problem.

For this assignment, please submit one Excel file. This assignment uses only one worksheet; it should be labeled “Q Set 1”. Be sure to label all results clearly.


Question Set 1.

You are an inventory management consultant. You have been hired by Walmart to help optimize inventory management for their Dairy department. Your immediate task is building a Monte Carlo simulation for sales of Milk, eggs and Cheese. The probabilities of monthly demand levels are:

Probability Milk Eggs Cheese
0.05 374 288 228
0.15 410 314 254
0.1 434 330 270
0.1 450 340 280
0.15 468 352 292
0.15 490 366 306
0.1 508 378 318
0.1 524 390 330
0.05 548 404 344
0.05 584 430 370


The unit revenues and costs are given in the table below.

Product Unit Revenue Unit Cost
Milk $2.16 $1.27
Eggs $1.29 $0.66
Cheese $4.44 $2.24

Each product has a separate display with an associated fixed monthly cost:

Product Fixed Monthly Display Cost
Milk $277
Eggs $169
Cheese $444

1. (5pts) Build a table for the cumulative probability distribution for demand. It should be set up for use with the VLOOKUP function, with the cumulative probabilities on the left.

2. (15pts) Build a table for tracking sales over one year (Jan 2017-Dec 2017) with separate columns for Milk, eggs, and cheese. This will just be the randomized demand value for each item for each month(like in 10.1.2 from the lab exercise on Monte Carlo simulations). For this assignment, assume all demand is actually met (that is, sales = demand) and there is no other inventory loss except through sales.

3. (10pts) Build a table for tracking total revenues, costs, and profit for the year. This table should use the information provided in your answer to 2., above. Your table should calculate values for:

  • Total Revenue (based on the combined sales of all three products over the year)
  • Total Cost (also based on combined sales, and including cost of goods sold and fixed costs)
  • Profit/Loss (total revenue minus total costs)

4. (10pts) Create a data table to generate 50 runs of the simulation and calculate the average profit of the 50 simulation runs. As in previous assignments, this must be an actual data table structure to earn full credit. Calculate the average profit over the 50 simulation runs.

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