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3. Assuming a service level of 99% for all parts, what will be the impact on the total inventory investment if the number of warehouses is reduced from 8 warehouses to 2? Reduced to 1? Assume that each of the 8 warehouse has roughly equal demand and, when consolidating the warehouses, the total demand across all 8 warehouses is equally divided between the remaining warehouses.

a. Using data from the case and Exhibit 3, complete the table below. Note that Exhibit 3 gives the standard deviation of the bi-weekly demand for 8, 2, and 1 warehouses respectively. Use these values to calculate the Stdev of weekly demand. (Hint: refer to the solved inventory problems document for additional examples) (2 points)

Product		Griffin Beaker			Erlenmeyer Flask
	# of Warehouses	8	2	1	8	2	1
	Z-Value	2.33	2.33	2.33	2.33	2.33	2.33
Calculations for 1 warehouse	Average Weekly Demand
	Stdev of Weekly Demand
	POU (weeks)
	Q
	Average Pipeline Inventory
	Begin on hand
	SS
	Average On Hand
	Average Inventory
	Total Average Inventory (all warehouses)

2. Calculate the percentage savings in total average Inventory investment from warehouse consolidation for each product. Assume lead time stays constant at 1 week:
   1. from 8 warehouses to 2 warehouses. (0.5 points)
   2. from 8 warehouses to 1 warehouse. (0.5 points)

3. Take a simple average of the percent savings for each part and apply the resulting average percent savings to the entire North American finished goods (NA FG) inventory. Assume 2010 NA FG is $5 million. Calculate the total savings for the NA FG if:
   1. 8 warehouses are consolidated to 2 warehouses. (0.5 points0
   2. 8 warehouses are consolidated to 1 warehouse. (0.5 points)
4. Would savings from consolidation compensate for the expected increase in inventory of $1.5 million if:
   1. 8 warehouses are consolidated to 2 warehouses? (0.5 points)
   2. 8 warehouses are consolidated to 1 warehouse? (0.5 points)

Exhibit 3

Exhibit 3: Information on Representative Products
	Griffin 500ml Beaker	Erlenmeyer 500ml Flask
2009 units sold	11,268	3,389
Percent of all units sold	0.1%	0.03%
Annual carrying cost (%)	14%	14%
Unit price	$ 8.80	$ 9.50
Unit cost	$ 3.96	$ 4.56
Cost of underage	$ 0.48	$ 0.49
Cost of overage	$ 0.021	$ 0.025
Optimal service level	95.8%	95.3%
Average bi-weekly demand (8 warehouses)	54.2	16.3
Standard deviation of bi-weekly demand (8 warehouses)	21.4	10.9
Average bi-weekly demand (2 warehouses)	216.7	65.2
Standard deviation of bi-weekly demand (2 warehouses)	38.3	19.5
Average bi-weekly demand (1 warehouse)	433.4	130.3
Standard deviation of bi-weekly demand (1 warehouse)	51.0	26.0

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