Question

A company serves two markets in Asia and has decided to have only one warehouse for the distribution of it's products to both markets. The demand in the first market is equal to 1,3 or 5 with equal probability, whereas the demand in the second market is equal to 4 or 6 with equal probability. The company has a target level of product availability of CSL 90% on both markets.

i) What is the optimal quantity the company should order to serve the two markets in a centralized distribution system?

ii) What is the optimal safety stock the company should have in it's warehouse?

Answer #1

1: The demand for first market is in the range of 1,3 and 5. CSL level is 90%.

Second market demand is 4or 6.

From a centralised distribution inorder to meet 90% to both market. Company shold maintain 90% of max demand of both market so 5+3 = 8 qty

2:safety stock is used for meeting the service level inordetito match with the lead time of arrival.in this case lead time is not provided thus safety stock can be calculated based on CSL level. Min of two markets.ie. 1 and 4 . So total qty of 5 units as safety stock

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