The DoorRed pharmacy has 25 retail outlets in the Chicago region. The current policy isto carry every drug in each retail outlet. The replenishment lead time is 10 days.
DoorRed aims for a cycle service level of 99%. Consider a drug with daily demand that isnormally distributed with mean of 300 and standard deviation of 50.
(a) What is the total safety stock across all retail stores?
(b) If the drug were centralized in one location, what would the safety stock at thecentral location be?
(c) The drug costs $10 per unit and DoorRed uses an annual inventory holding cost of20%. What would be the savings in holding safety stock by using one location?
(d) Centralization would lead to an increase of $0.02 in delivery charge for each unit ofthe drug. Do you recommend centralization? Please justify your answer. (Hint: usethe average demand to estimate the total delivery volume.)