A manufacturer sells a product in two regions. Weekly demand in each region is Normally distributed with mean 1,000 and standard deviation 300.
Lead time is one week. Demand in the two regions has a correlation coefficient of -.35. They are considering two supply chain configurations:
(1) A distribution center in each region, and,
(2) a central distribution center that would serve demand from each region. Suppose they want to maintain a 95% service level (i.e. don't stock out 95% of the time).
a. How much safety stock will there be with one distribution center?
b. How much total safety stock will there be with two distribution centers?