Consider a supply chain consisting of a single manufacturing facility, a cross-dock, and two retail outlets. Items are shipped from the manufacturing facility to the cross-dock facility and from there to the retail outlets. Let L1 be the lead time from the factory to the cross dock facility and let L2 be the lead time from the cross-dock facility to each retail outlet. Let L = L1 + L2. In the analysis below, we fix L and vary L1 and L2.
a) Compare the amount of safety stock in two systems, one in which lead time from the cross-dock facility to a retail outlet is zero (i.e. L1 = L2 = 0) and a second system in which the lead time from the factory to the cross-dock facility is equal to zero (i.e. L1 = 0 and L2 = L).
b) To reduce safety stock, should the cross-dock facility be closer to the factory or the retail outlets? For this purpose, analyze the impact of increasing L1 and therefore decreasing L2 on total safety stock.