Aggregated inventory: Example

Demand information (per week)

Region1: Normal with mean 250, std dev. 90

Region 2: Normal with mean 180, std dev. 70

Configuration 1: Warehouses at location A and B

When available, use inventory to satisfy customer orders

Service level target of 97%

Lead time factory-to-location is 1 week, H = $0.27 per unit per week

Configuration 2: Warehouse location C (Aggregate demand of A &B)

All other costs and parameters same as the prev. locations

How much safety inventory in each configuration?

Step 1: Find the ROP and SS at each warehouse

Step 2: Find the ROP and SS at new warehouse