Assignment task: Avery owns four large dealerships in the metropolitan area. Each of these locations currently keep inventory of required components used for the repairs of the cars. It is possible for the company to keep all the high-priced parts at one of these locations and then deliver to any other location within one hour. The cost of space and the delivery vehicle is negligible but the labor cost of the driver for making all the required deliveries to all three locations will be $180 per day. You have been hired as a supply chain consultant to help Avery in making this decision. Use the following data to calculate the total relevant costs of both the current and the proposed scenario:
Average Price of the High-Priced Components = $150
Annual Demand for the High -Priced Components = 20,000 items per location
Number of Work-Days = 250 per year
Annual Holding Costs = 30% per year
Lead Time for replenishment from the manufacturer = 9 days
Fixed Costs of placing an order with the manufacturer = $150 per order
Target cycle service level = 0.95
Q1. Calculate the EOQ and the savings in total inventory costs for the current and the proposed scenario.
Q2. Now assume that the demand at each location is not constant but it is Normal with mean 100 and standard deviation of 15 High-Priced items per day. Calculate the cost of safety inventory for the current and the proposed scenario.
Q3. What is your recommendation and how much will Avery save if the demand was probabilistic?