10. As a member of the inventory planning team for Cook Department Stores, one of your primary responsibilities is to aid department managers with inventory decisions.

The electronics department manager has come to your group with a desire to improve department inventory planning and profitability. The department stocks a VCR brand named Super View.

Super View Financial Data Selling price/unit

$555 Cost of goods sold, including delivery costs at current level of operations and under current inventory policies

$495 Super View Sales Data Representative 10-day sales (assume Cook Department Store is open 360 days a year):
Sales/Day Number of Days (f)
1 2 2 2 6 2 10 2 16 2 Super View Lead-Time Data Super View is supplied directly from Tokyo, Japan, by Sayonara Manufacturing.
Delivery pattern Super View Sample of 10 order cycles in days 9, 9, 42, 13, 22, 33, 11, 18, 36, 27 Current Super View Service and Inventory Policies Order policy EOQ: Orders are equal to the average demand that occur during average lead-time Fill rate 99 percent The following inventory carrying costs figures were collected:
Corporate opportunity of capital was 37% (pretax).
Other costs:
Inventory taxes 1.6%
Insurance 0.4%
Recurring storage 3.3%
Obsolescence 0.7%
Damage 2.0%
The manager has several questions regarding inventory policy:

a. Which of the of following Super View fill rates (99 percent, 95 percent, 91 percent, or 87 percent) will result in the highest annual profit?

TABLE 1 Daily Super View Sales Branch Store Day 1 2 3 4 5 1 1 1 1 16 16 2 2 2 2 10 10 3 6 6 6 6 6 4 10 10 10 2 2 5 16 16 16 1 1 6 1 1 16 16 7 2 2 2 10 10 8 6 6 6 6 6 9 10 10 10 2 2 10 16 16 16 1 1 Average sales/store 7 7 7 7 σs/Store 5.81 5.81 5.81 5.81 5.81

b. Sayonara Manufacturing stated that for an additional 1.5 percent increase in price, it can hire more dependable international carriers to cut the lead-time standard deviation in half. Should the electronics department manager accept or reject the offer? (Assume their current 99 percent fill rate and ordering policies.)

c. There are five Cook Department Store branches in the Detroit area (see Table 1).
Corporate management wants to compare the annual profitability of two strategies.
(1) Provide a 99 percent fill rate for Super View by stocking the appropriate number of units of safety stock at each branch store.
(2) Provide a 99 percent fill rate for Super View at the local area distribution center which serves all five branches, and expedite safety stock when needed to each individual branch at a total expediting cost of $150 per week.
Which strategy will be more profitable, assuming no lost sales if the second strategy is employed?