Single product and runs several warehouses

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Reference no: EM133631341

IncoTech distributes a single product and runs several warehouses which all face the same cost, demand and supply conditions. As a result, all warehouses have the same safety stock and reorder point levels for a given SKU. For some reason, however, the warehouse managers place orders of different sizes with the supplier of a particular SKU (even though all warehouses have the same economic order quantity!). Don Smith, the VP of Logistics Operations at IncoTech, reviews inventory and customer service data for these warehouses and is puzzled: He finds that there appears to be a positive correlation between order quantities and the proportion of demand filled from on-hand inventory. There are two parts to this question (A and B)--please be sure to respond to both parts of the question, and clearly label these parts accordingly.

1. Can you explain this positive correlation between order quantities and fill rates? (please be sure to explain why such a correlation exists)

2. Don Smith infers that all warehouses should use larger order quantities to improve customer service. Do you think this is a good idea? Why or why not?

Reference no: EM133631341

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