The DoorRed pharmacy has 25 retail outlets in the Chicago region. The current policy is to carry every drug in each retail outlet. DoorRed is investigating the possibility of centralizing some of the drugs in one central location. Delivery charge would increase by $0.02 per unit if a drug were centralized.

The increase in delivery charge comes from the additional cost of operating the shuttle from the central location to each of the other locations. At each retail outlet, DoorRed has weekly replenishment (a replenishment order is placed once every seven days), and replenishment orders with suppliers must be placed three days before delivery. DoorRed plans to stick to once-a-week ordering even if a drug is centralized.

DoorRed uses an inventory holding cost of 20 percent and aims for a cycle service level of 99 percent. Assume that demand across stores is independent.

a. Consider a drug with daily demand at each store that is normally distributed, with a mean of 300 and a standard deviation of