Dell procures monitors from Asia for its three distribution centers in the U.S. At the start of each month, each distribution center places an order on the Asian supplier. The lead time to each distribution center is 6 weeks: 4 weeks (equal to one month) in ocean transit from Asia to the west coast port at Long Beach, and then two weeks in rail-transit from Long Beach to the distribution center.
Weekly demand for monitors at the distribution centers is assumed to be normally distributed with the following parameters:
Dell is considering two possible changes to this supply chain so as to reduce its inventory requirements. One change is to use an expedited truck transportation from Long Beach to each of the DC's; this would reduce the transit time on land from two weeks to three or four days. The second change is to set up a cross-dock operation at Long Beach so that Dell could re-allocate the supply of orders that would go to each DC. That is, when the orders arrive, Dell would have an update on the inventory status at each of the DCs and would use this information to re-route the inventory so as to get the best overall corporate performance.
Suppose that the additional operating cost for each change is the same.
a. Which change would lead to the greatest reduction in inventory? Why? You can make additional assumptions (within reason) as needed.
b. What is the benefit of making both changes? Are the changes synergistic or competing?