Question 4.152

4.152 Risk pooling in a supply chain.

Example 4.39 (pages 232–233) compares a decentralized versus a centralized inventory system as it ultimately relates to the amount of safety stock (extra inventory over and above mean demand) held in the system. Suppose that the CEO of ElectroWorks requires a 99% customer service level. This means that the probability of satisfying customer demand during the lead time is 0.99. Assume that lead time demands for the Milwaukee warehouse, Chicago warehouse, and centralized warehouse are Normally distributed with the means and standard deviations found in the example.

  1. For a 99% service level, how much safety stock of the part SurgeArrester does the Milwaukee warehouse need to hold? Round your answer to the nearest integer.
  2. For a 99% service level, how much safety stock of the part SurgeArrester does the Chicago warehouse need to hold? Round your answer to the nearest integer.
  3. For a 99% service level, how much safety stock of the part SurgeArrester does the centralized warehouse need to hold? Round your answer to the nearest integer. How many more units of the part need to be held in the decentralized system than in the centralized system?