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XYZ is an apparel retailer in Canada. XYZ divides the year into four sales seasons of aboutthree months each and brings in new merchandise for each

May 5, 2024

XYZ is an apparel retailer in Canada. XYZ divides the year into four sales seasons of aboutthree months each and brings in new merchandise for each season. The company hashistorically outsourced production to China, given the lower costs there. Sourcing from theChinese supplier costs 55 yuan/unit (inclusive of all delivery costs), which at the currentexchange rate of 6.5 yuan/$ gives a variable cost of under $8.50/unit. The Chinese supplier,however, has a long lead time, forcing XYZ to pick an order size well before the start of theseason. This does not leave the company any flexibility if actual demand differs from the ordersize.

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