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Your company currently has six distribution centers to serve its U.S. market. There is a plan to add several additional warehouses, bringing the number to
Your company currently has six distribution centers to serve its U.S. market. There is a plan to add several additional warehouses, bringing the number to 14. Currently, there is an average of $1,635,000 of cycle stock and $305,000 of safety stock in each of the existing warehouses. Your company uses an inventory carrying cost of 20 percent. Use the "Square Root Rule" to answer the following questions. Show all work and label your answers. a. What is the estimated amount of total inventory that would exist in the system if your company adds the proposed warehouses? (5 pts) b. What would be the annual cost of the new inventory? (5 pts) c. If the addition of the warehouses is forecasted to result in $2.5M in added profits, do you recommend the additional warehouses? Why or why not? (3pts)
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