Based on the attached case, answer the following questions:

1. What is the inventory cost associated with safety stock of the current system? (E.g. Everything done in Malaysia.)

2. How would the inventory cost associated with safety stock change if labelling and packaging were moved to the DC?

3. From a SCOR perspective, what other impacts might you expect as a result from moving the labeling and packaging to the DC? Why? (4-5 sentences)

Please include Excel formula!!!

Should Packing Be Postponed to the DC? Penang Electronics (PE) is a contract manufacturer that previous month when Best Buy did not get its entire order produces and packages private-label products for several could have been avoided through postponement. If packagretail chains, including Target, Best Buy, Staples, and ing was shifted to the DC, the lead time of manufacturing Office Max. In each case, the basic products are identi- and transporting the basic product from Malaysia would cal, with the only difference being the labeling and the continue to be about nine weeks. Labeling and packaging packaging. Thus, the labeled and packed version of the were relatively quick steps and the response time from the product destined for Target cannot be sent to Best Buy. DC to the customer was not expected to change. Currently, a production facility in Malaysia is used The DC management was opposed to this idea to manufacture, label, and pack all products. The manu- because it would add additional work that was different facturing facility replenishes a DC in St. Louis, from from what they had done so far. A detailed study of the which the contract manufacturer fills all customer production process had shown that labeling and packagorders. The manufacturing and transportation lead time ing at the DC cost $2 per unit more than the cost of labelfrom Penang to St. Louis is nine weeks. PE uses a con- ing and packaging in Malaysia. DC management believed tinuous review policy to manage inventories at its DC that this increase in cost would be held against them once and aims to provide a cycle service level of 95 percent the process was changed, and they would be under conforeachproducttoeverycustomer.Thepreviousmonthhadbeenverychallengingstantpressuretolowercost.Theyalsobelieveditwouldcomplicatetheworktheydidwhenfillinganorderand because Best Buy requested 5,000 additional units could adversely impact customer service. beyond what was available at the DC, whereas Target ordered 3,500 fewer units and Staples ordered 4,000 Evaluating the Two Options fewer units. Even though there was sufficient product To evaluate the two options, a team from both manufacturinventory available at the DC (in the form of the basic ing and the DC was set up. The team decided to focus its product), PE could not meet the Best Buy request because analysis on three major product categories-computers, the excess inventory available was labeled and packed for other customers. The DC had leftover inventory from Target and Staples, which unfortunately could not be Best Buy, Staples, and Office Max. Weekly demand for used to serve Best Buy. PE had lost business and surplus case, "Mean" indicates the average weekly demand, and inventory all because of the wrong labels and packaging. " "SD" indicates the standard deviation of weekly demand. LabelingandPackagingattheDCincurredatotalcostof$1,000percomputer,$300perAlldemandwasassumedtobenormallydistributed.PE The vice president of supply chain at PE proposed post- printer, and $100 per scanner. Given the short life cycle of poning the final labeling and packaging to the DC. Her these products, PE used a holding cost of 30 percent when logic was that postponing labeling and packaging to the making its inventory decisions. The team analyzed the DC would allow PE to use all available inventories to serve impact of postponement on safety inventories before makany customer. In particular, the situation that arose in the ing a final recommendation