HW #2 (5-7 Final)

# HW #2 (5-7 Final) - Exercise 14 a b(Ch 11 Data of retail...

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Exercise 14, a & b (Ch. 11) 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)

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# of retail stores 25 normsinv (.99) = 2.3263479 b. Mean 5 St. Dev 4 Cost per unit \$10.00 Decentralized What is the annual holding cost of safety inventory across all retail stores?
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