A company currently has 3 retail outlets that sell one product. Weekly demand at each outlet is
Question:
A company currently has 3 retail outlets that sell one product. Weekly demand at each outlet is normally distributed with a mean of 1,200 and a standard deviation of 200. The lead time for replenishment is 4 weeks. Each retail outlet serves a separate geographic area and the correlation of demand across any pair of retail outlets is 0.2. The company is considering combining the separate retail outlets into a centralized location that will serve all customers (that is, location pooling). Assume that the demand in the centralized location is equal to the sum of the demands of the 3 retail outlets. If the company desires to have a cycle service level of 95% compare the safety stock required with the current structure (3 separate retail outlets) with the proposed structure of a centralized location. What savings, if any, in the number of units of safety stock results from the centralized location.
Business Statistics a decision making approach
ISBN: 978-0133021844
9th edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry