Consider a manufacturer of personal computers that sells PCsthrough the 4 Best Buy stores in the Triangle area. The weeklydemand at the Durham store is normally distributed with mean 30 andstandard deviation 8. The weekly demand at each of the Cary and twoRaleigh stores is normally distributed with mean 20 and standarddeviation 5. Inventory is reviewed on a continuous basis and thelead time from the manufacturer’s plant to the retail stores is 5days.
a. Please compute the safety stock levels at each of the fourretail stores if the manufacturer wants to achieve a probability ofno stock-out of 98%.
b. If each computer costs $1500 and the holding cost is based onan annual interest rate of 20%, what is the total annual cost ofcarrying safety inventory across the four retailers?
c. The PC manufacturer decides that they don’t need theretailers to sell their computers. They decide to withdraw theirinventory from the retail stores and satisfy customer demand from acentral warehouse in Cary. Assume that customers are indifferentbetween buying at a retail store versus waiting for their computerto be shipped from the warehouse, i.e. demand does not change. Thewarehouse will also follow a continuous inventory review policy andthe lead time from the plant is still 5 days. Please compute theannual cost of carrying safety inventory under this supply chaindesign using the cost parameters from part (b).
