Question 3 (Customized Engagement Rings) In April 2004 Amazon opened its Jewelry Store, followed in August 2005 by a custom diamond ring creator named Create Your Own Ring. Create Your Own Ring contributed to the doubling of Amazons jewelry sales in Q4 2005 and is loved by customers Steven Goldsmith, vice president, Amazon.com Jewelry & Watches says. Amazon also holds inventory of popular pre-set engagement ring styles in stock at DCs, but as it gains more and more experience with the build-to-order model, Amazon is evaluating a proposal to shrink or eliminate its inventory of pre-set ring styles to reduce holding costs. Under the proposal, Amazon would hold component inventory of the pre-set ring styles and pay its jeweler a $4 fee per ring for assembly.

Based on the cost and demand information (Exhibit 15) for the six most popular pre-set ring styles (assembled from three sizes of diamonds and two styles of settings), evaluate the profitability of the proposed build-to-order system for the pre-set styles. In your calculations, assume for each component the lead time is 7 days (Amazon pays suppliers upon ordering) and the annual percentage holding cost is 30%. Amazon seeks to maintain a pre-set style service level of 94%, which (based ondiscussions with the supply chain research department) would translate into a 95% service level for each diamond and 99% service level for each setting.

Hint: To determine the order quantity, you can assume that Amazon places an order with the suppliers an average of four times a week. Therefore, the order quantity is equal to one- fourth of the average weekly demand.

Fyhihit 15h. Demand for rinos (annroximatelv normallv distrihuted) Questions to be discussed during class 1. Can Amazon replicate its success in using drop shipping to the European market? 2. What challenges did Amazon face in having a centralized location for inventory in Europe? Fxhihit 15a- Procurement costs of comnonents Amazon.com Question 3 Input parameter values or formulas in green cells. To facilitate grading, please do not modify the template format. Service level (Setting) Z Build to Stock Unit proc. Cost Unit proc. Cost Service level (Diamond) z Order quantity Safety stock Avg. pipeline Avg. cycle inventory Avg. total inventory Avg. week inventory holding cc Build to Order Weekly demand Lead Time Demand Order quantity Safety stock Avg. pipeline inventory Avg. cycle inventory Avg. total inventory Avg. week inventory holding cc In your write-up (a separate document), conclude which system you would prefer