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This Hamptonshire Express case study looks into the challenges a newspaper publisher is facing, most especially when it comes to inventory and other operational decisions.
V.G. Narayanan and Ananth Raman
Harvard Business Review (698053-PDF-ENG)
March 01, 1998
Case questions answered:
- How many Hamptonshire Express newspapers should Sheen stock?
- How many hours should Sheen invest?
- How many newspapers should Armentrout stock, etc.?
- Given the new "Private Eye", how do Armentrout's decisions change?
- How does the buyback price change Armentrout's stocking decision?
- How would a VMI scheme influence Sheen and Armentrout's decisions?
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Case answers for Hamptonshire Express
This case solution includes an Excel file with calculations.
1. How many Hamptonshire Express newspapers should Sheen stock?
The optimal stocking quantity for Hamptonshire Express newspapers is Q=584 units (fill rate: 98%) and is higher than the mean of 500 units because the cost of overstocking is lower ($.20) than the price of understocking ($.80) an additional unit.
The fillrate increases slower than the stocking quantity as the probability of selling decreases with each additional unit.
Anna’s profit increases from a loss of $40/day to a maximum um $332/day and decreases again to $259/day at a stocking quantity of 1000 units.
2. How many hours should Sheen invest?
The relationship between channel effort and demand is intuitive – channel members can usually increase demand for their products by investing additional efforts into product design, advertising, and promotions.
- Sheen has a (marginal) opportunity cost of her time of $10. Therefore, she should invest until the revenues equal the value of her time investments.
- The optimal time investment is four hours.
3. How many newspapers should Armentrout stock, etc.?
Problem 3a/b: For a given effort of Sheen (4h) varying the stocking quantity, we find that the optimal stocking quantity for Armentrout is at Q=516 units (fill rate 86%). This is lower than in Problem 1 because the overall margin is now…
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