Reconsider Exercise 7.8. Now suppose that the mail-order firm follows a periodic review policy with a review period of 2 weeks. Recall that the firm has four regional warehouses with demand at each warehouse that is normally distributed with a mean of 10,000 per week and a standard deviation of 2,000. Further, annual holding cost is 25%, and each unit of product costs the company $ 10. replenishment lead time is 1 week. The company wants a service level of 95%. Assume 50 working weeks in a year.
a. Assuming that each warehouse operates independently, what should be the ordering policy at each warehouse? How much safety stock does each warehouse hold? How much average inventory is held (at all four warehouses combined) and at what annual cost? On average, how long does a unit of product spend in the warehouse before being sold?
b. Assume that the firm has centralized all inventories in a single warehouse and that the target service level is still 95%. Ideally, how much average inventory can the company now expect to hold and at what cost? In this case, how long will a unit spend in the warehouse before being sold?