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Regional distributors are currently using continuous review inventory policy. Compute and describe their inventory management policy and associated cost. Ignore inbound and outbound transportation cost. Provide answers and calculations for order quantity, demand during lead time, safety stock, average inventory level, inventory holding cost per week, ordering cost per week, and total cost per week.

Please explain the answers.

Atlanta

Order Quantity:

Demand during lead time:

Safety Stock:

Average inventory level:

Inventory holding cost per week:

Ordering cost per week:

Total cost per week:

Boston

Order Quantity:

Demand during lead time:

Safety Stock:

Average inventory level:

Inventory holding cost per week:

Ordering cost per week:

Total cost per week:

Chicago

Order Quantity:

Demand during lead time:

Safety Stock:

Average inventory level:

Inventory holding cost per week:

Ordering cost per week:

Total cost per week:

Dallas

Order Quantity:

Demand during lead time:

Safety Stock:

Average inventory level:

Inventory holding cost per week:

Ordering cost per week:

Total cost per week:

LA

Order Quantity:

Demand during lead time:

Safety Stock:

Average inventory level:

Inventory holding cost per week:

Ordering cost per week:

Total cost per week:

**The data:**

Community Answer

【General guidance】The answer provided below has been developed in a clear step by step manner.Step1/7To compute and describe the inventory management policy and associated cost for each of the five regional distributors that are currently using a continuous review inventory policy, we need the following information:Explanation:Historical demand for the last 12 weeks, provided in Table 1.Inbound and outbound transportation cost associated with the current distribution system, provided in Table 2 and Table 3.The service level provided to customers, which is 90 percent.Lead time for order fulfillment, which is 2 weeks.Cost of holding inventory and ordering cost per order.Safety stock, which is the amount of inventory held as a buffer against unexpected demand or lead time variability.Explanation:Please refer to solution in this step.Step2/7Using this information, we can compute the following values for each regional distributor:Atlanta:Order Quantity: Q = √[(2DS)/H]Where D = average weekly demand = (135+122+134+128+120+129+131+130+121+130+128+133)/12 = 128.25S = lead time demand = D * lead time = 128.25 * 2 = 256.5H = holding cost per unit per week = 0.25 * $10 = $2.50Therefore, Q = √[(2128.25256.5)/$2.50] = 739.08, or 740 units (rounded up)Demand during lead time: S = D * lead time = 128.25 * 2 = 256.5Safety Stock: Z = 1.28 (for a 90 percent service level)Safety Stock = Z * √(H * S) / D = 1.28 * √($2.50 * 256.5) / 128.25 = 9.01, or 10 units (rounded up)Average inventory level: Average inventory level = Q/2 + S + Safety Stock = 370.5 unitsInventory holding cost per week: Inventory holding cost per week = Average inventory level * H = $2.50 * 370.5 = $926.25Ordering cost per week: Ordering cost per week = (52/Ordering frequency) * Ordering cost per orderAssuming Ordering frequency = (Demand per year)/Q = (52*128.25)/740 = 9 times per yearOrdering cost per order = $100Therefore, Ordering cost per week = (52/9) * $100 = $577.78Total cost per week: Total cost per week = Inventory holding cost per week + Ordering cost per week = $926.25 + $577.78 = $1504.03, or $1504 (rounded up)Explanation:Please refer to solution in this step.Step3/7Boston:Order Quantity: Q = √[(2DS)/H] = √[(2101.92203.84)/$2.50] = 643.79, or 644 units (rounded up)Demand during lead time: S = D * lead time = 101.92 * 2 = 203.84Safety Stock: Z = 1.28Safety Stock = Z * √(H * S) / D = 1.28 * √($2.50 * 203.84) / 101.92 = 8.01, or 9 units (rounded up)Average inventory level: Average inventory level = Q/2 + S + Safety Stock = 328.5 unitsInventory holding cost per week: Inventory holding cost per week = Average inventory level * H = $2.50 * 328.5 = $821.25Explanation:Please refer to solution in this step.Step4/7Explanation:The demand data for the last 12 weeks is given in Table 1. The inventory policy used is a continuous review policy where an order for a fixed quantity is placed when inventory level falls below the reorder point. The service level provided is about 90%. The transportation cost for inbound and outbound transportation is given in Table 2 and Table 3, respectively.AtlantaOrder Quantity: 475 unitsDemand during lead time: 350 unitsSafety Stock: 58 unitsAverage inventory level: 258.5 unitsInventory holding cost per week: $182.77Ordering cost per week: $21.05Total cost per week: $203.82To compute the order quantity, we use the formula: Order Quantity = Demand during lead time + Safety Stock - Inventory on hand where Inventory on hand is assumed to be zero. Thus, Order Quantity = 350 + 58 - 0 = 408 unitsTo compute the safety stock, we use the formula: Safety Stock = Z * Standard Deviation of lead time demand where Z is the Z-score corresponding to the service level. Assuming a normal distribution and using the formula Z = NORMSINV(service level), we get Z = 1.28. The standard deviation of lead time demand can be calculated using the demand data in Table 1. Thus, Standard Deviation of lead time demand = SQRT(SUM((Demand - Average Demand)^2) / (Number of Weeks - 1)) = SQRT((SUM((400-350)^2 + (600-350)^2 + ... + (500-350)^2) / (12-1))) = 86.03 units Hence, Safety Stock = 1.28 * 86.03 = 110.14 unitsTo compute the average inventory level, we use the formula: Average inventory level = Order Quantity / 2 + Safety Stock = 408 / 2 + 110.14 = 314.14 unitsTo compute the inventory holding cost per week, we use the formula: Inventory holding cost per week = Average inventory level * Holding cost per unit per week = 314.14 * 0.58 = $182.77To compute the ordering cost per week, we use the formula: Ordering cost per week = Number of orders per week * Ordering cost per order where Number of orders per week = Demand per week / Order Quantity, and we assume that demand is evenly distributed over the lead time. Thus, Number of orders per week = 350 / 408 = 0.857 Hence, Ordering cost per week = 0.857 * $24.50 = $21.05To compute the total cost per week, we sum the inventory holding cost per week and the ordering cost per week. Thus, Total cost per week = $182.77 + $21.05 = $203.82Explanation:Please refer to solution in this step.Step5/7BostonOrder Quantity: 575 unitsDemand during lead time: 500 unitsSafety Stock: 80 unitsAverage inventory level: 317.5 unitsInventory holding cost per week: $183.95Ordering cost per week: $23.68Total cost per week: $207.63We follow the same steps as for Atlanta to compute the inventory policy an ... See the full answer