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What is the resulting inventory policy

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I-mart manufactures cellular phones at its Seattle facility. The demand for phones at the Chicago DC averages 17,600 per month with a standard deviation of 5,500. The fixed cost of transportation and ordering is $100,000. Each phone costs $100, and I-mart has an annual holding cost of 25%. Delivery lead-time from the Seattle factory is 2 months.

(a) If I-mart desires a cycle service level (frequency of no stock-out) of 95%, how much safety stock should the Chicago DC carry?

(b) If they use an optimal order quantity approach, what is the resulting inventory policy?

(c) I-mart is considering sending the phones by airfreight instead of sending them by ground. Airfreight will cost an extra $5 per phone but will reduce the delivery lead-time to 0.5 month. Identify the tradeoff that I-mart must consider when deciding whether to go with the airfreight option. What would you recommend? Why? Quantify the costs and benefits of the change.

Reference no: EM13222131

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