Problem
I. Regional distributors are currently using continuous review inventory policy. Compute and describe their inventory management policy and associated cost. Ignore inbound and outbound transportation cost. Provide answers and calculations for order quantity, demand during lead time, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week.
II. Suppose five regional warehouses are replaced by single, centralized warehouse as shown in figure 1b.
i. Assuming that warehouse is using continuous review inventory policy, compute and describe its inventory management policy and associated cost. Ignore inbound and outbound transportation cost. Provide answers and calculations for order quantity, demand during lead time, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week.
ii. Compare ordering, holding, and total cost of maintaining a single, centralized warehouse versus maintaining five regional warehouses. Has cost increased or decreased? Will you always observe similar results? Explain.