A manufacturer presently owns a total of four warehouses in the following cities

Question

A manufacturer presently owns a total of four warehouses in the following cities Sacramento, Phoenix, Cincinnati, and Atlanta. The safety inventory levels for the four warehouses are 5000 units, 6000 units, 8000 units, and 4000 units, respectively. They plan to reduce the number of warehouses from currently four to two. Using the square root rule, what will be the required total average inventory level at the new two- warehouses network required to maintain the network ‘s present 98% customer service level? A manufacturer presently owns a total of four warehouses in the following cities Sacramento, Phoenix, Cincinnati, and Atlanta. The safety inventory levels for the four warehouses are 5000 units, 6000 units, 8000 units, and 4000 units, respectively. They plan to reduce the number of warehouses from currently four to two. Using the square root rule, what will be the required total average inventory level at the new two- warehouses network required to maintain the network ‘s present 98% customer service level?

Explanation / Answer

Since the required average service level would remain same, the square root rule applies as below: X = Total inventory (5000+6000+8000+4000) = 23000 n1 = 4 n2 = 2 New inventory 23000*sqrt(n2/n1) 16263.46 Average inventory 8131.73

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