3. The Oakmont Inc. is a make-to-stock firm. A typical part for one of the firm’s products has the following data:

Manufacturing lead time (LT) = 8 weeks.

Forecast = 50 per week.

Mean absolute deviation (MAD) of forecast errors = 8.

Safety stock = 95 percent service level (2.056 ⫻ MAD ⫻ 1.25 ⫻ )

A cellular manufacturing approach will reduce a typical part’s manufacturing lead time to two weeks.

a. What’s the reduction in safety stock?

b. The cell can manufacture 40 percent of the parts (the present total safety stock investment is

$200,000). If you assume a lead time reduction from eight weeks to two weeks for these parts, what’s the overall reduction in safety stock investment?

c. An engineer believes redesign of the cell can increase the percentage of parts produced therein from 40 percent to 60 percent. How much safety stock investment reduction comes from the redesign?