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Sales of watches Team 7 Chua Sock Yii | Kum Wei Chuen | Lau Hui Xian Lydia | Teo Wan Yu | Tho Bei Yi Joey

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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! ~