Answer to question 2.a
| Average weekly demand(d-bar) | 2.5 | units |
| Standard Deviation (sigma) | 1.2 | units |
| Lead Time (LT) | 12 | weeks |
| Z | 2.61 | |
| Average Inventory Level (R) | d-bar*LT + z*sigma*sqrt(LT) | |
| 41 | units |
Answer to question 2.b
| safety stock for retail store | 11 | units |
| Saftey stock for all 94 store | 1062 | units |
| all 94 store + ware house | d-bar-LT+saftey stock of 94 stores | |
| 1094 | units | |
| Average inventory level | 12 | units |
Answer to question 2.c
| As per Little’s law | L =λW |
| where, | |
| L = Work in process inventory | |
| λ = Average inventory level | |
| W = Replanishment time | |
| L = | 150 units |
Answer to question 2.d
Average inventory held by Restoration Hardware in the consolidated distribution network
= L + Average network inventory level = 162
Answer to question 2.e
Warehousing of inventory is an important aspect of the inventory management. There are two types of warehousing concepts, one is centralized warehousing and the other is decentralized warehousing. In centralized warehousing system, a central warehouse is established to store inventory after procurement and the distribution of inventory is made directly from the centralized warehouse to the respective stores and departments. On the other hand, in decentralized warehousing system, small warehouses are established in different convenient places and locations to serve the nearby stores. Materials are procured regionally and stored in the decentralized or regional stores (Hugos 2018).
Distribution of inventory from centralized store is known as consolidated distribution network. A control over the procurement and issue of materials is an advantage of the consolidated distribution system. On the other hand, high inventory cost due to procuring inventory in a centralized system and a resultant higher inventory cost is a disadvantage of the centralized inventory system or consolidated distribution network.
Establishment of regional warehouses and procurement and issue of materials regionally is called the locational pooling model. Lower inventory cost due to location advantage and regional procurement of materials is an advantage of this model. On the other hand, lack of control over the procurement and issue system of the inventory is a disadvantage of this system (Christopher 2016).
Answer to question 3.a
| w | $3.00 |
| p | $7.00 |
| s | $0.00 |
| Cs | =p-w |
| $4.00 | |
| Ce | =w-s |
| $3.00 | |
| Service Level (SL) | =Cs/(Cs+Ce) |
| 0.571429 | |
| Since, 0.3<SL<0.7 | |
| The optimal order for sushi box | |
| 75 | |
| Expected profit | =Cs*optimal order |
| $300.00 |
Answer to question 3.b
| w | $2.70 |
| p | $7.00 |
| s | $0.00 |
| Cs | =p-w |
| $4.30 | |
| Ce | =w-s |
| $2.70 | |
| Service Level (SL) | =Cs/(Cs+Ce) |
| 0.614286 | |
| Since, 0.3<SL<0.7 | |
| The optimal order for sushi box would be same | |
| 75 | |
| Expected profit | =Cs*optimal order |
| $322.50 |
Answer to question 3.c
| Profit per box from sushi | 4 | |||||
| Profit per box from snack box | 2.5 | |||||
| Optimal sushi box | 75 | |||||
| Demand | 50 | 60 | 70 | 80 | 90 | 100 |
| Probability | 0.05 | 0.15 | 0.2 | 0.3 | 0.2 | 0.1 |
| (50*4)-(75-50)*3 | (60*4)-(65-50)*3 | (70*4)-(75-70)*3 | (75*4)+(80-75)*2.5 | (75*4)+(90-75)*2.5 | (75*4)+(100-75)*2.5 | |
| Total profit | $125.00 | $195.00 | $265.00 | $312.50 | $337.50 | $362.50 |
| Expected profit | ∑[(prob.)*(profit)] | $286 |
It can be observed that, the store is having an expected demand of 78 Susi boxes per day and profit per unit is greater for Susi boxes as compared to Snacks boxes. The criteria of service level (SL) which say if the SL lies between 0.3 and 0.7 then the optimum level of order is the average amount of order. Hence, the store should order 78 boxes of Susi box in the morning in order to maximize the profit. Thus the
Hence, the amount of expected profit would be $286 where profit from the Sushi box is $4 per unit and the profit from the Snacks box is $2.5 per unit.
Reference and Bibliography
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Hugos, M.H., 2018. Essentials of supply chain management. John Wiley & Sons.
Meindl, S.C.P., 2016. Supply Chain Management–Strategy, Planning and Operation. Tsinghua University Press. wheat soybean others land for no use.
Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., 2015. Purchasing and supply chain management. Cengage Learning.
