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Junglebooks needs to manage inventory strategically to compete effectively. Ben Barnesworth is considering decentralizing from a single centralized distribution center (CDC) to six smaller decentralized distribution centers (DCs). With a strategic decision of this importance, Ben hopes to be assured of its profitability. In this assignment you will consider the inventory implications of the decentralization decision. You will likely need to make several assumptions in the process of performing calculations, indicate and defend your assumptions as required. 1. First consider the decentralized analysis. Estimate the optimal decisions for a (Q, R) inventory policy for each of the four SKU types detailed in the case (page 7) for each proposed DC. The data is reproduced here for ease of reference: Number of Titles Unit Cost Lead Time Mean Demand Std Dev Fed Ex Charges Soft Cover I Soft Cover II HardCover I HardCover II 70,000 10,000 20,000 $2.50 $10.00 $10.00 3 3 2 50 100 10 50 20 12 $6.00 $11.00 $11.00 50,000 $2.00 2 25 5 $6.00 The demand at each DC distributed according to the above table; e.g. each of the six DCs sees a mean demand of 25 units for each title of SKU type SoftCover I. Calculate the optimal strategy Q, R) for each decentralized DC. Estimate the annual inventory holding and ordering costs across all DC's for managing the inventory of SKU type SoftCover I. 2. Now consider a centralized analysis (their current system) using the same service level derived for the decentralized system. Determine the optimal decisions of a (Q, R) inventory policy SKU type SoftCover I for a centralized DC. Estimate the annual inventory holding plus ordering costs for managing inventory of SKU type SoftCover I.

Junglebooks needs to manage inventory strategically to compete effectively. Ben Barnesworth is considering decentralizing from a single centralized distribution center (CDC) to six smaller decentralized distribution centers (DCs). With a strategic decision of this importance, Ben hopes to be assured of its profitability. In this assignment you will consider the inventory implications of the decentralization decision. You will likely need to make several assumptions in the process of performing calculations, indicate and defend your assumptions as required. 1. First consider the decentralized analysis. Estimate the optimal decisions for a (Q, R) inventory policy for each of the four SKU types detailed in the case (page 7) for each proposed DC. The data is reproduced here for ease of reference: Number of Titles Unit Cost Lead Time Mean Demand Std Dev Fed Ex Charges Soft Cover I Soft Cover II HardCover I HardCover II 70,000 10,000 20,000 $2.50 $10.00 $10.00 3 3 2 50 100 10 50 20 12 $6.00 $11.00 $11.00 50,000 $2.00 2 25 5 $6.00 The demand at each DC distributed according to the above table; e.g. each of the six DCs sees a mean demand of 25 units for each title of SKU type SoftCover I. Calculate the optimal strategy Q, R) for each decentralized DC. Estimate the annual inventory holding and ordering costs across all DC's for managing the inventory of SKU type SoftCover I. 2. Now consider a centralized analysis (their current system) using the same service level derived for the decentralized system. Determine the optimal decisions of a (Q, R) inventory policy SKU type SoftCover I for a centralized DC. Estimate the annual inventory holding plus ordering costs for managing inventory of SKU type SoftCover I.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter11: Strategic Cost Management
Section: Chapter Questions
Problem 9E
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Hi, previously I had asked questions one at a time so I'm sending all 4 since they all relate together but I'd appreiciate it if you could focus on #1 and 2. *These are not graded questions*

Junglebooks needs to manage inventory strategically to compete effectively. Ben Barnesworth is considering decentralizing from a single centralized distribution center (CDC) to six smaller decentralized distribution centers (DCs). With a strategic decision of this importance, Ben hopes to be assured of its profitability. In this assignment you will consider the inventory implications of the decentralization decision. You will likely need to make several assumptions in the of performing calculations, indicate and defend your assumptions as required. process 1. First consider the decentralized analysis. Estimate the optimal decisions for a (Q, R) inventory policy for each of the four SKU types detailed in the case (page 7) for each proposed DC. The data is reproduced here for ease of reference: EITIT Soft Cover I SoftCover II HardCover I HardCover II Number of Titles 50,000 70,000 10,000 20,000 Unit Cost $2.00 $2.50 $10.00 $10.00 Lead Time 2 3 3 2 Mean Demand 25 50 100 10 Std Dev 5 50 20 12 Fed Ex Charges $6.00 $6.00 $11.00 $11.00 The demand at each DC distributed according to the above table; e.g. each of the six DCs sees a mean demand of 25 units for each title of SKU type SoftCover I. Calculate the optimal strategy (Q, R) for each decentralized DC. Estimate the annual inventory holding and ordering costs across all DC's for managing the inventory of SKU type SoftCover I. 2. Now consider a centralized analysis (their current system) using the same service level derived for the decentralized system. Determine the optimal decisions of a (Q, R) inventory policy SKU type SoftCover I for a centralized DC. Estimate the annual inventory holding plus ordering costs for managing inventory of SKU type SoftCover I. 3. Estimate the difference in annual expenses between the centralized and decentralized systems for managing inventory of SKU type SoftCover I. 4. In what ways is this analysis approximate? In what ways does it exaggerate or underestimate the differences in inventory costs between the current centralized system and the proposed decentralized system?
Transcribed Image Text:Junglebooks needs to manage inventory strategically to compete effectively. Ben Barnesworth is considering decentralizing from a single centralized distribution center (CDC) to six smaller decentralized distribution centers (DCs). With a strategic decision of this importance, Ben hopes to be assured of its profitability. In this assignment you will consider the inventory implications of the decentralization decision. You will likely need to make several assumptions in the of performing calculations, indicate and defend your assumptions as required. process 1. First consider the decentralized analysis. Estimate the optimal decisions for a (Q, R) inventory policy for each of the four SKU types detailed in the case (page 7) for each proposed DC. The data is reproduced here for ease of reference: EITIT Soft Cover I SoftCover II HardCover I HardCover II Number of Titles 50,000 70,000 10,000 20,000 Unit Cost $2.00 $2.50 $10.00 $10.00 Lead Time 2 3 3 2 Mean Demand 25 50 100 10 Std Dev 5 50 20 12 Fed Ex Charges $6.00 $6.00 $11.00 $11.00 The demand at each DC distributed according to the above table; e.g. each of the six DCs sees a mean demand of 25 units for each title of SKU type SoftCover I. Calculate the optimal strategy (Q, R) for each decentralized DC. Estimate the annual inventory holding and ordering costs across all DC's for managing the inventory of SKU type SoftCover I. 2. Now consider a centralized analysis (their current system) using the same service level derived for the decentralized system. Determine the optimal decisions of a (Q, R) inventory policy SKU type SoftCover I for a centralized DC. Estimate the annual inventory holding plus ordering costs for managing inventory of SKU type SoftCover I. 3. Estimate the difference in annual expenses between the centralized and decentralized systems for managing inventory of SKU type SoftCover I. 4. In what ways is this analysis approximate? In what ways does it exaggerate or underestimate the differences in inventory costs between the current centralized system and the proposed decentralized system?
One week later BB: Mark, here is a chart that Lee came up with, with all the data you asked for. In fact, Lee came up with three different charts. The first breaks our SKUS up into 10 categories, the second into 20, and the third into 50. MC: Excellent. Let's look at a few of the larger categories from the first chart. SoftCover I SoftCover II HardCover I HardCover II Number of Titles 50,000 70,000 10,000 20,000 Unit Cost $2.00 $2.50 $10.00 $10.00 Lead Time 2 3 3 2 Mean Demand 25 50 100 10 Std Dev 50 20 12 Fed Ex Charges $6.00 $6.00 $11.00 $11.00 The chart shows categories which cover about 150,000 of their 500,000 titles. The lead time, in weeks, is the time required to receive a shipment to a DC after an order is placed. The mean and standard deviation given in the chart is for the weekly demand projected for one of the proposed decentralized DCs. Assume 52 weeks/year. The Unit Cost, Lead Time, Mean Demand, Std Dev and Fed Ex charges are for a single title in a given category. MC: The service levels that you should use at each DC is based on estimates of costs of excess and costs of shortages. We can assume that the cost of being short a unit at a DC is based on the extra expense to Fed Ex a unit from another DC when the closest DC is out of stock. The chart gives representative Fed Ex charges. Eisenstein 7
Transcribed Image Text:One week later BB: Mark, here is a chart that Lee came up with, with all the data you asked for. In fact, Lee came up with three different charts. The first breaks our SKUS up into 10 categories, the second into 20, and the third into 50. MC: Excellent. Let's look at a few of the larger categories from the first chart. SoftCover I SoftCover II HardCover I HardCover II Number of Titles 50,000 70,000 10,000 20,000 Unit Cost $2.00 $2.50 $10.00 $10.00 Lead Time 2 3 3 2 Mean Demand 25 50 100 10 Std Dev 50 20 12 Fed Ex Charges $6.00 $6.00 $11.00 $11.00 The chart shows categories which cover about 150,000 of their 500,000 titles. The lead time, in weeks, is the time required to receive a shipment to a DC after an order is placed. The mean and standard deviation given in the chart is for the weekly demand projected for one of the proposed decentralized DCs. Assume 52 weeks/year. The Unit Cost, Lead Time, Mean Demand, Std Dev and Fed Ex charges are for a single title in a given category. MC: The service levels that you should use at each DC is based on estimates of costs of excess and costs of shortages. We can assume that the cost of being short a unit at a DC is based on the extra expense to Fed Ex a unit from another DC when the closest DC is out of stock. The chart gives representative Fed Ex charges. Eisenstein 7
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