The following applies to Questions 4 - 8 Acme Manufacturing has several Distribution Centers (DCs) serving its customers in different parts of the country. The Chief Operating Officer believes that Acme has too much inventory of Product AA on its books for the customer service it seeks to provide. Acme currently has a goal of 98% Service Levels (z of 2.05). He is considering pooling its inventory in its two major East Coast DCs - one located in Washington and the other in New Jersey - into a centralized warehouse in Philadelphia. The Suppliers maintain warehouses close to the different areas so that the average lead time for replenishment at each site is 1 week. The following table summarizes the relevant data for Product AA in the Distribution Centers in Washington, New Jersey, and Philadelphia. Product AA Average Weekly Demand during Lead Time Standard Deviation Coefficient of of Demand Economic Order Quantity Variation Washington 50 10 0.2 400 New Jersey 100 25 0.25 700 Philadelphia 150 20 0.13 900 The EOQ is based on the different Order Costs and holding costs for each facility. Which of the following is his rationale for this strategy? Reduction in variability will allow a decrease in Economic Order Quantities and therefore reduces pipeline inventory Pooling the inventory in a central location will increase customer service Pooling inventory will reduce variability and allow a decrease in safety stock and therefore in average inventory Removing inventory from the individual DCs will reduce inventory in the DCs and the costs of storing inventory What is the Average inventory of Product AA in Washington DC before consolidation [round up to the nearest highest number]? 281 152 84 321 221 What would be the Re-Order Point for Product AA in the New Jersey DC before consolidation [round up to the nearest highest number)? 221 84 321 152 281 The COO has done some estimation based on the numbers given above and has decided that he needs to stock an Average Inventory of 491 units at the centralized Philadelphia DC. This, if correct, would result in a savings of approx: 32% 54% 43% 21% 15% After a few months of operation following the consolidation, the COO reviewed his service levels at the DC in Philadelphia and felt that he would be comfortable lowering his service levels of Product AA to 95% (z of 1.65). What would be the new average inventory levels he would need to maintain? 533 321 452 483 403