The Target Company imports brass lamps from China. Weekly demand at Target’s distribution center for lamps is normally distributed with an average of 4000 and a standard deviation of 1200. Each lamps costs $100. Target incurs a holding cost rate of 10% per year to carry inventory. Eeach order shipped from China incurs a fixed costs of $40.000 for transportation and distribution costs. To keep calculation easy, assume that a year has 50 weeks.
1) What is the economic order quantity of lamps the for distribution center?
2) If the delivery lead time from China is 4 weeks and Target wants to provide its customers a cycle service level of 95%, how much safety stock should it carry? What major assumptions is needed to answer this question. („z-value for 95% service level is 1,65)
3) Fasthip is a new shipping compnay that promises to reduce the delivery lead time for lamps from 4 weeks to 1 1 week using faster shipping and expedited customs clearence. Using Fastship will add $1 to the transportation costs of $40.000 per order will not change). Should Target use Fastship? Why or why not? Quantify the impact of the change.
4) Suppose Target decided not to use Fasthsip. It has 8 distribution centers each of which has the characteristics in Part (1). What would be the impact of Target centralizing the 9 DC’s into one?