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Inventory holding costs as result of the centralization

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Home Depot sells the LawnBoy T750 lawn mowers at 81 stores in the Western US. Weekly demand for the T750 at each of the stores is identical and given by: X ~ Normal (50, 30). Assume that the demands at the 81 stores are independent of each other. The manufacturer's lead time for supplying the mowers is 9 weeks. Home Depot has a stated policy of 96% cycle service level for mowers.

1. How much safety stock is required at each store?

2. The chain is considering centralizing the inventory of the T750 to a distribution center that will serve all 81 stores. How much safety stock would be required at the DC to provide the same cycle service level of 96%?

3. If the cost of each mower is $600, and Home Depot uses a 25% holding cost rate, what is the annual savings for the chain in inventory holding costs as a result of the centralization?

Reference no: EM133545324

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