Back in the 1970s, Fun Colours, a paint retailer in Peterborough, provided a variety of colours to its customers: they stocked one-gallon cans of paint in 75 different colours. Moreover, they kept enough cans of each colour to ensure a service level of 98% for each colour. The weekly demand forecast per colour followed a normal distribution with a mean of 100 cans per week and a standard deviation of 40. The store ordered their paint from a factory in Toronto at a unit cost of $3.50 per can. The delivery lead time was 2 weeks. Assume 50 weeks in a year.

Round your final answers to zero decimals.

[2 point]  How much safety stock of each colour was required to support Fun Colours' service level?

[2 point]  If cost of capital for Fun Colors was 20% per year, what was their annual holding cost for safety stock for all colors?

A few years later a new technology allowed for in-store customization of colour. A small amount of colouring agents would be mixed in a can of neutral coloured paint. Consequently, the store only needed to stock one-gallon cans of neutral coloured paint since the equipment included the colouring agents for the 75 colours. Demand, unit costs, capital cost, service level and lead time remained the same.

[3 points]  What was the resulting annual holding cost for safety stock for the neutral coloured paint? Based on your previous answer, how much could they save with the new technology?

Answer rating: 100% (QA)

Question 1 Safety Stock for Each Colour To calculate the safety stock for each color we will use the ... View the full answer