Average inventory as the sum of cycle stock and safety stock

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Suppose the weekly demand for a popular tablet computer follows the normal distribution, N(1500, 200) in UK, N (2000, 250) in Germany, and N (1200, 200) in France. Amazon sources the tablet at $250 per unit, and the sourcing lead time is 2 weeks. Each sourcing order costs Amazon $200 in administrative processing and transportation. The company uses a continuous review (R, Q) policy to manage inventory and targets a 98% service level (k = 2.054). Assume an annual interest rate of 50% to calculate inventory holding cost and 52 weeks in a year.

What are the order quantity Q and reorder level R for each DC? Define cycle stock as Q/2, safety stock as R minus the expected demand during lead time, and average inventory as the sum of cycle stock and safety stock. What is the total amount of average inventory held in all three DCs?

Reference no: EM13822351

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