Home Depot manufactures and sells a screwdriver and drill set with two different packages to two big-box retailers. The manufacturing lead time is constant four weeks. The packaging is customized for each retailer and the two end-products are inventoried separately at the manufacturer's warehouse. Each retailer carries only the product customized for it. The two order-streams from the two retailers are identical, each with a mean of 5200 units per week and standard deviation of 3800 units. Home Depot wishes to provide a service level of 99.9%.
(a) Consider only one retailer and the inventory of this retailer's customized product at Home Depot. What should be the safety stock of this product? What should be the reorder point?
(b) If we assume that demand is constant, and the order size is 20000, what should be the reorder point for the setting described in (a)?
(c) Ignore (b) and get back to variable demand.. If two products are combined into one product with one common packaging and both retailers carry the same product, how much total safety stock of the common product should Home Depot carry?
(d) Compare the total safety stock Home Depot must carry in (a) and (c). Briefly (and qualitatively) point out any reasons why these two numbers are different.