This preview shows pages 1–3. Sign up to view the full content.
Data
# of retail stores
25
Delivery charge for centralized system increases by $ 0.02 per unit
Periodic
RP = 7 days
Service Level
99%
normsinv (.99) =
2.3263479
L = 3 days
Holding Cost
20% of the unit price
a.
Mean
300
St. Dev
50
Cost per unit
$10.00
Decentralized
What is the annual holding cost of safety inventory across all retail stores?
For one store:
SS=normsinv (SL) * St. Dev. * SQRT(RP + L) = 2.3263*50*SQRT(3+7) =
368
Annual holding cost = SS*holding cost/unit=
$736.00
For 25 stores:
SS =
9200
Annual holding cost is
$18,400.00
Centralized
What is the annual holding cost?
SS = normsinv (SL) * SQRT(sum of all St. Dev.^2) * SQRT (RP+L) = 2.3263 * SQRT(25*(50^2)) * SQRT (3+7) =
1840
Annual holding cost is
$3,680.00
What is the increase in delivery charges?
Increase is 365 days*25*300*$.02 =
$54,750.00
Do you recommend centralization?
No
because delivery charges will exceed savings by
$(40,030.00)
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document# of retail stores
25
normsinv (.99) =
2.3263479
b.
Mean
5
St. Dev
This is the end of the preview. Sign up
to
access the rest of the document.
 Fall '10
 Staff

Click to edit the document details