One of the many products produced by the Global Corporation is marketed primarily in the United States. A rough form of the product is produced in one of the corporation’s plants in Asia and then is shipped to a plant in the United States for the finish work. The finished product next is sent to the corporation’s distribution center in the United States. The distribution center stores the product and then uses this inventory to fill orders from various wholesalers. These sales to wholesalers remain relatively uniform throughout the year at a rate of about 10,000 units per month. The American plant uses its inventory of the finished product to send a shipment to the distribution center whenever the center needs to replenish its inventory. The associated administrative and shipping cost is about $400 per shipment. Whenever the American plant needs to replenish its inventory, the Asian plant uses its inventory of the rough product to send a shipment to the American plant, which then sets up for a quick production run to convert the rough product to a finished product. Each time this happens, the shipping cost and setup cost total about $6,000. The Asian plant replenishes its inventory of the rough product when needed by setting up for a quick production run. A setup cost of $60,000 is incurred each time this is done. The monthly cost for holding each unit is $3 at the Asian plant, $7 at the American plant, and $9 at the distribution plant. All the assumptions of the model for a serial multiechelon system presented in Sec. 18.5 apply to the joint inventory system at the three locations for the product.
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