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Answer :
Final answer:
The supermarket should use the Newsvendor Model to find the optimal amount of lettuce to purchase. This is done by calculating overage and underage costs, then using these to find the service level and eventual demand level using Excel's NORM.S.INV function.
Explanation:
In order to determine what the optimal number of boxes of lettuce to be bought by the supermarket is, you should use the Newsvendor Model, a common model in operations management for managing inventory under uncertainty.
Firstly, we calculate the overage and underage costs. The overage cost is the cost of ordering one unit too many which is the cost of the fresh produce ($11.00) minus what the supermarket gets from the leftover produce ($3.00), which gives us $8.00. The underage cost is the cost of ordering one unit too few and missing a sale, or the selling price minus the cost of the fresh produce, which gives us $13.00.
We then use these to find the critical ratio, which is the underage cost divided by the sum of the underage and overage costs ($13.00 / $21.00 = 0.619). This represents the optimal service level, or the probability that we do not stock out.
We then use Excel's NORM.S.INV function with the critical ratio to find the optimal z value, and add this to the average demand, multiplied by the standard deviation. This should give the number of boxes of lettuce the supermarket should buy, rounded to the nearest whole number.
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