Aggregated inventory: Example

Inventory

Management

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$$ Demand information $($per week$)$

$$ Region$1$: 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\mathrm{.}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?

Evaluating the system

Inventory

Management

$35$

$$ Option $1$: Find the ROP and SS at each warehouse

$$ Option $2$: Find the ROP and SS at new warehouse

$$ Compare option $1$ and option $2$ for the benefits