BabyUs has 400 retail stores in the United States. BabyUs has started selling through its online channel along with its retail stores. Management must decide

BabyЯUs has 400 retail stores in the United States. BabyЯUs has started selling through its online channel along with its retail stores. Management must decide which products to carry at the retail stores and which products to carry at a central warehouse to be sold only via the online channel. Consider two products: headband and fur-lined coat. Their weekly demand and cost information at each store are summarized in the following table.

BabyЯUs has a holding cost of 25 per cent. Each time when BabyЯUs submits an order, the vendor charges a fixed ordering cost, regardless of the order quantity. Note the headbands and fur-lined coats are ordered from two different vendors. BabyЯUs manages all inventories using a periodic review policy, and the supply lead time for both products is four weeks. The targeted cycle service level is 98 per cent (z = 2.055). Assume the demands for both products are independent.

(a) Suggest an optimal periodic review period T for each product (assuming each year has 52 weeks). (8 marks) For simplicity, for the following questions we assume that the periodic review period T=3 weeks, same for both products.

(b) First consider the retailing option. For headband and fur-lined coat, obtain their overall annual holding costs of the safety stocks at all retailers. (8 marks)

(c) Consider the option of a central warehouse. For headband and fur-lined coat, obtain their annual holding costs of safety stocks at their respective central warehouses. (8 marks)

(d) Based on your results in (a) - (c), which of the two products should BabyЯUs carry at the stores, and which should it carry at the central warehouse for the online channel? Why? (7 marks)

(e) Apart from the inventory costs, what are the other factors that BabyЯUs should consider before making the decision? (7 marks)
 

Products Headband Fur-lined coat Mean of weekly demand 800 120 Standard deviation of weekly demand 100 50 Price ($/each) 20 60 Ordering Cost ($) 100 200