the third party
...053748 using the 98% service level times the new standard deviation. The amount of safety stock recommended by us is indicated in the diagram below. The safety stock levels are as follows: A – 38, AA - 235, AB - 6458, AQ - 1342, AU - 2532, AY - 119. Average inventory is obtained via the formula (review period x mean/2 + safety stock.) Average Inventories are as follows: A – 42.485, AA – 286.619, AB – 8436.256, AQ – 1629.182, AU – 3057.058, AY – 156.717 Review Period (P) 1 Lead time (L) 4 Protection period (P + L) 5 Service Level (SL) 98% Z value for 98% 2.053749 Europe Options Weekly Mean Weekly Std Dev Mean (Protection period) Std Dev (Protection period) Safety Stock Avg Inventory A 10.575 8.1 52.875 18.11215062 37.1978096 42.4853096 AA 105.05 50.975 525.25 113.9835652 234.0936228 286.6186228 AB 3957.525 1406.15 19787.625 3144.246987 6457.493823 8436.256323 AQ 575.3 292.125 2876.5 653.2113579 1341.532115 1629.182115 AU 1052 551.15 5260 1232.408866 2531.058366 3057.058366 AY 76.7 25.775 383.5 57.63465212 118.367104 156.717104 Sum of total 5777.15 2334.275 28885.75 5219.597578 10719.74284 13608.31784 Generic 5777.15 1561 28885.75 3490.502113 7168.614912 10057.18991 3) To reduce the imbalance in inventory levels, several suggestions have been suggested. One of those was to implement air shipment of printers from Vancouver to Europe in order to reduce lead time. Although several critics have lambasted such a move as too prohibitively expensive, upon further examination it would suggest otherwise. The old method of shipping the printers over is in fact much more expensive. Shipping involves additional costs such as freight cost, insurance, and costs of loading and unloading. Also ocean shipment costs are charged per container shipped, whereas air shipment cost is only charged per pallet. Moreover, it was found out that ocean freight costs are about one-fifth of air freight costs. Other detriments associated with ocean shipping include higher inventory, depreciation and obsolescence costs, which all in all evidently concludes that air shipment is indeed much cheaper as per what most critics have claimed. By adopting air shipment, lead time is indeed reduced. Instead of waiting shipment to arrive by sea for weeks, air travel minimizes that to a mere few days. Thus, whenever there is an unexpected change or fluctuations in product mix, the Vancouver division can ship additional quantities quicker to deal with the sudden situational change, and in so doing also reducing its inventory levels. As lead time decreases, the protection period decreases. The safety stock level decreases, resulting in a decrease in average inventory. There is a tradeoff here: by using supposedly “more expensive” air shipment, ordering costs will increase while holding costs decreases. Thus in fact, if holding costs exceeds ordering costs, it will make sense to use the air shipment option. However, are there other better alternatives at hand? Inevitably, indulging in one method means others have to be sacrificed and a tradeoff is incurred. However, some tradeoffs can be better off without. For example, air shipping meant that the idea of building an additional plant in Europe was discarded. However, it proved a wise choice since, building a new plant will incur greater costs and also the volume in Europe was never great enough to justify or maintain a plant there. Also it reduces the problem of having additional inventory, which cannot be cleared off, that has already been an increasing burden on the Vancouver plant. 4) The average inventory of the generic model is different from the total average inventory across all the 6 old models. If generic models are used, the calculated average inventory for that would be 10,057 units as shown in the below table, and the inventory amount for the 6 models is 13,608. The assumptions here follow that of question 2 except for: • Demand follows a normal distribution with different parameters (weekly mean = 5777, weekly standard deviation = 1561) due to only having one generic model. • Service Level remain...