6 A company currently has two warehouses. Each warehouse services half the company’s demand, and the annual demand serviced by each warehouse is N(10,000, 1,000,000). The lead time for meeting demand is 

1/10

 year.

The company wants to meet 95% of all demand on time.

Assume that the EOQ at each warehouse is 2,000.

a How much safety stock must be held?

b Show that, if the company had only one warehouse, it would hold less safety stock than it does when it has two warehouses.

c A young MBA argues, “By having one central warehouse, I can reduce the total amount of safety stock needed to meet 95% of all customer demands on time.

Therefore, we can save money by having only one central warehouse instead of several branch warehouses.”

How might this argument be rebutted?