Introduce a new wearable computer device.

Peach Company is planning to introduce a new wearable computer device for the 2021 holiday season. Peach’s products are sometimes wildly successful and sometimes complete failures.

Peach needs to order displays (screens) and other components for this new device by the end of April. These components will arrive in a single shipment in September, which will allow Peach to get the finished product assembled by October and then send it to retail stores in November and December.  The marketing and manufacturing departments of Peach have conferred, and their best guess is that distribution of demand for the holiday season is Normal with mean 500,000 and a standard deviation of 200,000.
The anticipated cost of components totals $135 and the total cost of assembly is $15, so the total production cost is $150. The wearable device will have a wholesale price of $250 and a retail price of $400.
If there are leftover devices after the holiday season, Peach will have to drop its wholesale price to $125 per unit to clear its leftover inventory.

(a) How many units of components should Peach order in anticipation of demand during the upcoming holiday season?  (11 points)

(b) Peach has identified a contract manufacturer that will charge a capacity reservation of $5 per unit and then charge $10 per unit actually assembled. Should Peach reserve capacity equal to, greater than, or less than your answer to part (a)? Why?  (4 points)

(c) Peach also sells other small electronic products with longer product life cycles. These products are shipped from the factory to various warehouses dozens of times during the life cycle of the product. For many of these products, Peach has designed the product’s software so that the user’s preferred language can be selected when the user first turns the product on.  Peach is considering the option of holding all of its North American inventory of these language-flexible, small, consumer electronics products in a single, centrally-located warehouse rather than having them held in separate warehouses to handle orders from Canada, the U.S. and Mexico, respectively. (Canada has two official languages, English and French. Spanish is the de facto language in Mexico.) The manager of the current U.S. warehouse just earned her Bachelor’s in Business Administration from a major U.S. university.

Explain to her the various reasons why savings can be achieved through such a consolidation. Please be specific. You may use a simple numerical example to illustrate your logic if you find it helpful to do so.  (11 points)


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