per phone. Each phone costs $100, and Motorola uses a holding cost of 20 percent. Given the minimum lot sizes, Motorola would order 100,000 phones at a time (on average, once every 20 days) if using sea transport and 5,000 phones at a time (on average, daily) if using air transport. To begin with, assume that Motorola takes ownership of the inventory on delivery. a) Assuming that Motorola follows a continuous review policy, what reorder point and safety inventory should the warehouse aim for when using sea or air transportation? How many days of safety and cycle inventory will Motorola carry under each policy? b) How many days of cycle inventory does Motorola carry under each policy? c) Under a continuous review policy, do you recommend sea or air transportation if Motorola does not own the inventory while it is in transit? Does your answer change if Motorola has ownership of the inventory while it is in transit?
3) Weekly demand for private label washing machines at Karstadt, a German department store chain, is normally distributed with a mean of 500 and a standard deviation of 300. Karstadt currently has a supply source in China that delivers machines at a cost of 200 euro. The lead time required by the supplier is normally distributed with a mean of nine weeks and a standard deviation of six weeks. A European supplier has offered to deliver washing machines with a guaranteed lead time of one week at a cost of 210 euro. Karstadt has a holding cost of 25 percent and targets a cycle service level of 99 percent. Should Karstadt accept the local supplier’s offer?
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