JT produces laser printers for the global market in its Weihai facility that are shipped to regional distribution centres afterwards before being sold to retailers. In the past month, the demand for type-X printers at the European distribution centre averaged at 200,000 units with a standard deviation of 54,815 units. Each unit costs 100 in manufacturing and JT assumes an annual holding cost rate (including physical holding cost and cost of capital) of 20%. The lead time between the Weihai facility and the European distribution centre is 2 months and JT aims for a 90% service level at its distribution centres (note that this corresponds to a safety factor of z = 1.29). The fixed cost of transportation and ordering amount to 125,000.

i) Explain the different reasons for holding inventories as well as the corresponding types of inventories. (12 marks)

ii) Assuming the distribution centre uses a continuous review inventory system, explain what quantities should be ordered and when. (6 marks)

To increase efficiency, JT is considering sending the printers by airfreight instead of using standard sea freight. Airfreight will cost 2 per unit but will reduce the delivery lead-time to 1 month.

iii) Discuss whether you would recommend changing from sea freight to airfreight and support your recommendation by analysing the potential cost impact. (6 marks)

iv) Besides using airfreight, discuss what other measures could JT introduce to improve inventory management efficiency? (6 marks)