SOLUTION

LOGISTICS ENGINEERING & SUPPLY CHAIN DESIGN

QUIZ 2 – GROUP 1
Duration: 15 minutes

Question:

HappyWorking is a retail chain for stationery. The company currently has 100 stores
distributed across Vietnam. In addition, HappyWorking also operates an online channel. It is
considering introduction of a new inkjet cartridge and must decide whether to offer it at retail
stores or the online channel. Weekly demand for the inkjet cartridge has been forecast to be
normally distributed with N(100,802). The company also forecast that the demand at the online
channel would be the sum of demand across all 100 stores. It takes the supplier four weeks to
fulfill a replenishment order, whether placed separately by each store or by the online DC.
HappyWorking is targeting a CSL of 95 percent. Given that F-1(0.95) = 1.645.
a. How much safety inventory will HappyWorking carry if the ink cartridge is carried at
all 100 stores?
b. How much saving in safety inventory will HappyWorking expect if the ink cartridge is
carried online, and all stores have demand that is independent and identically
distributed?
c. How much saving in safety inventory will HappyWorking expect if the ink cartridge is
carried online and demand across stores has a correlation coefficient of ρ = 0.3?

Answer:
𝑘 = 100 ; 𝐷 = 100; 𝜎𝐷 = 80; 𝐿 = 4; 𝐶𝑆𝐿 = 0.95
a. How much safety inventory will HappyWorking carry if the ink cartridge is carried
at all 100 stores?
• 𝑠𝑠 = 𝑘 × 𝐹𝑆−1 (𝐶𝑆𝐿) × √𝐿 × 𝜎𝐷 = 100 × 𝐹𝑆−1 (0.95) × √4 × 80 = 26,320

b. How much saving in safety inventory will HappyWorking expect if the ink cartridge
is carried online, and all stores have demand that is independent and identically
distributed?
• 𝜎𝐷𝐶 = √𝑘 × 𝜎𝐷 = √100 × 80 = 800
• 𝑠𝑠 = 𝐹𝑆−1 (𝐶𝑆𝐿) × √𝐿 × 𝜎𝐷𝐶 = 𝐹𝑆−1 (0.95) × √4 × 800 = 2,632
• 𝑆𝑎𝑣𝑖𝑛𝑔 𝑖𝑛 𝑠𝑎𝑓𝑒𝑡𝑦 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 26,320 − 2,632 = 23,688

c. How much saving in safety inventory will HappyWorking expect if the ink cartridge
is carried online and demand across stores has a correlation coefficient of ρ = 0.3?
• 𝜎𝐷𝐶 = √𝑘𝜎 2 + 𝑘(𝑘 − 1)𝜌𝜎 2 = √100 × 802 + 100 × (100 − 1) × 0.3 × 802 = 4,433
• 𝑠𝑠 = 𝐹𝑆−1 (𝐶𝑆𝐿) × √𝐿 × 𝜎𝐷𝐶 = 𝐹𝑆−1 (0.95) × √4 × 4,433 = 14,585
• 𝑆𝑎𝑣𝑖𝑛𝑔 𝑖𝑛 𝑠𝑎𝑓𝑒𝑡𝑦 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 26,320 − 14,585 = 11,735

Page 1 of 1