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A company currently has 3 retail outlets that sell one product. Weekly demand at each outlet is normally distributed with a mean of 1,200 and

A company currently has 3 retail outlets that sell one product. Weekly demand at each outlet is normally distributed with a mean of 1,200 and a standard deviation of 200. The lead time for replenishment is 4 weeks. Each retail outlet serves a separate geographic area and the correlation of demand across any pair of retail outlets is 0.2. The company is considering combining the separate retail outlets into a centralized location that will serve all customers (that is, location pooling). Assume that the demand in the centralized location is equal to the sum of the demands of the 3 retail outlets. If the company desires to have a cycle service level of 95% compare the safety stock required with the current structure (3 separate retail outlets) with the proposed structure of a centralized location. What savings, if any, in the number of units of safety stock results from the centralized location.

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