Question 9 1 pts Buy-A-Lot has backrooms in each of their 5 central New Jersey s

Question

Question 9 1 pts Buy-A-Lot has backrooms in each of their 5 central New Jersey stores where they store stock. Each store currently keeps 20 bottles of a popular hair care product as safety stock. Each bottle costs $8.95 and the annual holding cost is 16%. The district manager wants to pool the safety stock in a single centralized location. How many bottles of product can the manager SAVE in safety stoch hoose 45 bottles. $28.64. What is the holding cost savins 20 bottles. $78.76. $64.44. $492.25 55 bottles $402.75. 80 bottles.

Explanation / Answer

Since the variances of lead time demand of the separate warehouses will be summed up and then square rooted to find the standard deviation of lead time demand for the central warehouse, the safety stock of the central warehouse will be,

SS = Z x (Sigma x n)

When (Z x Sigma) is the safety stock ('Sigma' being the lead time demand) of a single warehouse and given as 20.

So, the safety stock at central warehouse will be 205 = 44.7 or 45 (rounded off)

So, SAVED safety stock = (20*5 - 45) = 55 bottles

Cost saving = 55 x $8.95 x 16% = $78.76

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