ABC obtains printers from its international manufacturers to serve the UK market. Daily demand at the UK store is normally distributed with a mean

(u) of 200 units and a standard deviation (a) of 20 units. ABC aims for a service level (a) of 90%. ABC is debating whether to use Sea or Train

transportation mode. Sea mode results in a lead time of 14 days and costs $10 per unit. Train mode results in a lead time of 7 days and costs $14 per

unit. Each printer costs $500, and ABC uses a holding cost of 20% per year. Given the minimum lot sizes (Q), ABC would order 4,000 printers each

time if using Sea mode, and 500 printers at a time if using Train mode. Assume that 1 year = 52 weeks = 365 days. (Note: Round up your solutions to

the nearest integer) [28%]

(a) If ABC follows a continuous review policy, what reorder point (R) and safety inventory should ABC aim for when using (i) Sea, or (ii) Train? [8%]

(b) Which transportation mode (Sea or Train) would you recommend if ABC takes ownership of the in-transit inventory? (Hints: Compute the annual

sum of total transportation cost and total inventory cost for each mode) [16%]

(c) If ABC does not own the in-transit inventory, would you change your choice in part (b) and why?