Complete Computer (CC) is a retailer of computer equipment in Minneapolis with four retail outlets. Currently each outlet manages its ordering independently. Demand at each retail outlet averages 4,000 units per week. Each unit costs $ 200, and CC has a holding cost of 20% per annum. The fixed cost of each order (administrative plus transportation) is $ 900. Assume 50 weeks in a year.
a. Given that each outlet orders independently and gets its own delivery, determine the optimal order size at each outlet.
b. CC is thinking of centralizing purchasing (for all four outlets). In this setting, CC will place a single order (for all outlets) with the supplier. The supplier will deliver the order on a common truck to a transit point. Since individual requirements are identical across outlets, the total order is split equally and shipped to the retailers from this transit point. This entire operation has increased the fixed cost of placing an order to $ 1,800. If CC manages ordering optimally in the new setting, compute the average inventory in the CC system (across all four outlets).