Under the fixed time-period (periodic review) model, the average inventory at the DC is the cycle stock plus the safety stock (= Q/2 + SS), where the cycle stock is half of the sales during the review period.For example, for Option A one-month’s average sales = 42.3 units, i.e., one-week’s average sales = 42.3/4.33 = 9.8 units. If the average physical inventory at the DC is set to 42.3 units, then: 42.3 = (avg cycle stock) + Safety StockSafety Stock = 42.3 − (avg cycle stock) = 42.3 − (9.8)/2 = 37.4 items. You should be able to compute that if the safety stock is 37.4, then the service level for Option A will be less than 98%. So, under the “current policy,” inventory for Option A will probably be lower than what you computed in Question 1 (and thus inventory cost will be lower), but the service level for Option A will be lower than the required 98%. Note that pipeline (or in-transit) inventory is not held by the DC, but its cost should be included in the supply chain cost. Suggested length: 2 pages, possibly more when Excel printouts are included.