Compute safety stock levels at each of four retail stores

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Reference no: EM132257216

Consider a manufacturer of personal computers that sells PCs through the 4 Best Buy stores in the Triangle area. The weekly demand at the Durham store is normally distributed with mean 30 and standard deviation 8. The weekly demand at each of the Cary and two Raleigh stores is normally distributed with mean 20 and standard deviation 5. Inventory is reviewed on a continuous basis and the lead time from the manufacturer’s plant to the retail stores is 5 days.

a. Please compute the safety stock levels at each of the four retail stores if the manufacturer wants to achieve a probability of no stock-out of 98%.

b. If each computer costs $1500 and the holding cost is based on an annual interest rate of 20%, what is the total annual cost of carrying safety inventory across the four retailers?

c. The PC manufacturer decides that they don’t need the retailers to sell their computers. They decide to withdraw their inventory from the retail stores and satisfy customer demand from a central warehouse in Cary. Assume that customers are indifferent between buying at a retail store versus waiting for their computer to be shipped from the warehouse, i.e. demand does not change. The warehouse will also follow a continuous inventory review policy and the lead time from the plant is still 5 days. Please compute the annual cost of carrying safety inventory under this supply chain design using the cost parameters from part (b).

Reference no: EM132257216

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