At the dcs were based on safety stocks that were a

at the DCs were based on safety stocks that were a result of some
judgmental rule of thumb” (p. 7). You should assume that this “rule of
thumb” is to keep inventory equal to one-month’s average sales. To be

consistent, use the following interpretation: (target physical inventory level
at the DC) = (average physical inventory at the DC) = (one month’s average
sales).  Recall that
(avg physical inv) = (avg cycle stock) + (safety stock),
whereas
(avg inv position) = (avg physical inv) + (avg pipeline inv).
Thus if we are keeping one month’s average sales as physical inventory, then
we have
(1 month’s avg sales) = (avg cycle stock) + (implied level of SS), or
SS = (1 month’s avg sales) – (avg cycle stock).
Since we know that
(avg cycle stock) = (avg demand during T)/2,
and since T = 1 week, we get
SS = (1 month’s avg sales) – (1 week’s avg sales)/2.
For example, for Option A one-month’s average sales = 42.3 printers, i.e.,
one-week’s average sales = 42.3/4.33 = 9.8 printers. If the average physical
inventory at the DC is set to 42.3 printers, then:
42.3 = (avg cycle stock) + Safety Stock
Safety Stock = 42.3 − (avg cycle stock) = 42.3 − (9.8)/2 = 37.4 printers.
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.