܀ ܀ HighMed, a manufacturer of medical equipment, is located in Madison, Wisconsin. HighMed currently divides the United States into twenty-four territories, each with its own sales force. All product inventories are maintained locally in each territory and replenished from Madison every four weeks using UPS. The average replenishment lead time using UPS is one week. UPS charges at a rate of $0.66 + 0.26x, where x is the quantity shipped in lbs. The products sold fall into two categories - HighVal and LowVal. HighVal products weigh 0.1 lbs and cost $200 each. Weekly demand for HighVal products in each territory is normally distributed, with a mean of μч = 2 and a standard deviation of σ = 5. LowVal products weigh 0.04 pounds and cost $30 each. Weekly demand for LowVal products in each territory is normally distributed, with µ = 20 and σ = 5. HighMed maintains sufficient safety inventories in each territory to provide a CSL of 0.997 for each product. Annual holding cost at HighMed is 25%. In addition to the current approach, the management team at HighMed is considering two other options: Option A: Keep the current structure but replenish inventory once a week rather than once every four weeks. Option B: Eliminate inventories in the territories, aggregate all inventories in a finished-goods warehouse at Madison, and replenish the warehouse once a week. ܀ If inventories are aggregated at Madison, orders will be shipped using FedEx, which charges $5.53 + 0.53x per shipment, where x is the quantity shipped in lbs. The factory requires a one-week lead time to replenish finished-goods inventories at the Madison warehouse. An average customer order is for 1 unit of HighVal and 10 units of LowVal. What should HighMed do?
܀ ܀ HighMed, a manufacturer of medical equipment, is located in Madison, Wisconsin. HighMed currently divides the United States into twenty-four territories, each with its own sales force. All product inventories are maintained locally in each territory and replenished from Madison every four weeks using UPS. The average replenishment lead time using UPS is one week. UPS charges at a rate of $0.66 + 0.26x, where x is the quantity shipped in lbs. The products sold fall into two categories - HighVal and LowVal. HighVal products weigh 0.1 lbs and cost $200 each. Weekly demand for HighVal products in each territory is normally distributed, with a mean of μч = 2 and a standard deviation of σ = 5. LowVal products weigh 0.04 pounds and cost $30 each. Weekly demand for LowVal products in each territory is normally distributed, with µ = 20 and σ = 5. HighMed maintains sufficient safety inventories in each territory to provide a CSL of 0.997 for each product. Annual holding cost at HighMed is 25%. In addition to the current approach, the management team at HighMed is considering two other options: Option A: Keep the current structure but replenish inventory once a week rather than once every four weeks. Option B: Eliminate inventories in the territories, aggregate all inventories in a finished-goods warehouse at Madison, and replenish the warehouse once a week. ܀ If inventories are aggregated at Madison, orders will be shipped using FedEx, which charges $5.53 + 0.53x per shipment, where x is the quantity shipped in lbs. The factory requires a one-week lead time to replenish finished-goods inventories at the Madison warehouse. An average customer order is for 1 unit of HighVal and 10 units of LowVal. What should HighMed do?
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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܀
HighMed, a manufacturer of medical equipment, is located in Madison, Wisconsin. HighMed
currently divides the United States into twenty-four territories, each with its own sales force.
All product inventories are maintained locally in each territory and replenished from Madison
every four weeks using UPS. The average replenishment lead time using UPS is one week.
UPS charges at a rate of $0.66 + 0.26x, where x is the quantity shipped in lbs. The products
sold fall into two categories - HighVal and LowVal.
HighVal products weigh 0.1 lbs and cost $200 each. Weekly demand for HighVal products in
each territory is normally distributed, with a mean of μч = 2 and a standard deviation of σ = 5.
LowVal products weigh 0.04 pounds and cost $30 each. Weekly demand for LowVal products
in each territory is normally distributed, with µ = 20 and σ = 5.
HighMed maintains sufficient safety inventories in each territory to provide a CSL of 0.997 for
each product. Annual holding cost at HighMed is 25%. In addition to the current approach, the
management team at HighMed is considering two other options:
Option A: Keep the current structure but replenish inventory once a week rather than once every
four weeks.
Option B: Eliminate inventories in the territories, aggregate all inventories in a finished-goods
warehouse at Madison, and replenish the warehouse once a week.
܀
If inventories are aggregated at Madison, orders will be shipped using FedEx, which charges
$5.53 + 0.53x per shipment, where x is the quantity shipped in lbs. The factory requires a
one-week lead time to replenish finished-goods inventories at the Madison warehouse. An
average customer order is for 1 unit of HighVal and 10 units of LowVal. What should
HighMed do?
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