Chain in inventory holding costs as result of centralization

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Reference no: EM13964526

Home Depot sells the LawnBoy T650 lawn mowers at 64 stores in the Western US. Weekly demand for the T650 at each of the stores is identical and given by: X ~ Normal (60, 40). Assume that the demands at the 64 stores are independent of each other. The manufacturer’s lead time for supplying the mowers is 4 weeks. Home Depot has a stated policy of 96% cycle service level for mowers.

a. How much safety stock is required at each store?

b. The chain is considering centralizing the inventory of the T650 to a distribution center that will serve all 64 stores. How much safety stock would be required at the DC to provide the same cycle service level of 96%?

c. If the cost of each mower is $500, and Home Depot uses a 20% holding cost rate, what is the annual savings for the chain in inventory holding costs as a result of the centralization?

Reference no: EM13964526

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