Q7: The management at SAMSUNG decided to analyze its supply chain in its [recently] growing market of the Middle East. For this analysis, it chose two particular products, each as a representative of a wide range of products; Galaxy S7 (product A) and 8800 Class KS9810 Curved TVs (product B). Let's look at each product in more details:

Product A: Net profit for each sold item is $500. However, the overage cost is $150. Daily demand, on average, is 3,000. The company believes that this average will remain fixed for the next 100 days. In case of stockout, about 75% of customers wait to buy the product, at no further cost for the company, while the rest of 25% buy another cellphone. Average order cycle time to deliver an item to the retailer is 10 days, with standard deviation of 5. For each item, daily inventory cost is $35 (including opportunity costs). There are two options. Option (1): Management should improve the fill rate to 95% that requires a one-time investment of $1000,000. Option (2): Management should reduce the average delivery time from 10 days to 5 days, and the standard deviation from 5 days to 3 days, without change the fill rate. This option costs $1000,000 as well. Both options require a more efficient distribution system at its DC in Dubai and costs equally. Comparing the two options for the next 100 days, which one would you suggest? Why?

Product B: The net profit for each sold item is about $10,000. The overage cost is $3,000. Its customers are very sensitive to services they receive, and demand variation is very large; average daily demand is 50, with standard deviation of 35. Using quadrant model, suggest a reasonable inventory system, for products A and B.