Suppose the total value of 2010 inventory is $11 million and the increase in value of inventory required by the company is $1.6 million.

The managers suggest four policy changes to reduce the value of the average inventory

5-9!" greater enforcement by the warehouse managers of maintaining only sufficient inventories in the warehouses to meet the company' s target service level of 99% discontinuation of the practice of allowing salespeople to maintain trunk stock creation of daily reports and weekly summaries on inventory movements for every warehouse periodic physical audits and control procedures for all warehouse stocks. Exhibit 3 Information on Representative Products Griffin 500ml Erlenmeyer Beaker 500ml Flask 2009 units sold 11,268 3,389 Percent of all units sold 0.1% 0.03% Annual carrying cost (%) 14% 14% Unit price $ 8.80 $ 9.50 Unit cost $ 3.96 $ 4.56 Cost of underage $ 0.48 $ 0.49 Cost of overage $ 0.021 $ 0.025 Optimal service level 95.8% 95.3% Average bi-weekly demand (8 warehouses) 54.2 16.3 Standard deviation of bi-weekly demand (8 warehouses) 21.4 10.9 Average bi-weekly demand (2 warehouses) 216.7 65.2 Standard deviation of bi-weekly demand (2 warehouses) 38.3 19.5 Average bi-weekly demand (1 warehouse) 433.4 130.3 Standard deviation of bi-weekly demand (1 warehouse) 51.0 26.0Product Griffin Beaker Erlenmeyer Flask Service Level 99% 99.9% 99% 99.9% Z-Value 2.33 3.09 2.33 3.09 Average Weekly Demand Stdey of Weekly Demand POU (weeks) Q Average Pipeline Inventory Begin on hand 55 Average On-Hand Average Inventory