2. A firm is attempting to estimate the inventory impact of adding warehouses to
ID: 367952 • Letter: 2
Question
2. A firm is attempting to estimate the inventory impact of adding warehouses to its network. Utilizing the square root rule, determine the safety stock level needed for networks with 6 – 10 facilities in the table below. The existing network has one (1) location with assumed existing inventory safety stock level of 100, and the firm has already determined the safety stock needed for adding network locations 2 – 5 using the square root rule. The square root rule formula is:
SSj = Nj x SSi Ni
Where
SSj = Total safety stock for Nj warehouses or product variations (future safety stock)
Nj = # of warehouse locations or product variations for new network
Ni = # of warehouse locations or product variations for existing network
SSi = Total safety stock for Ni warehouses or product variations (existing safety stock)
Network Locations
Safety Stock Level
1
100
2
141
3
173
4
200
5
224
6
7
8
9
10
SHOW ALL WORK FOR EACH SAFETY STOCK CALCULATION ABOVE
3. A firm’s existing safety stock inventory is 2000 units in a four (4) facility network. What will the future safety stock inventory be if the firm’s network is expanded to eight (8) facilities? SHOW ALL WORK.
Network Locations
Safety Stock Level
1
100
2
141
3
173
4
200
5
224
6
7
8
9
10
Explanation / Answer
Ans : Safety stocks
For 6 = 100 x( 6)1/2 =2.44x100 = 244
For 7 = 100x ( 7)1/2 = 264
For 8 = 100 x ( 8)1/2 = 282
For 9 = 100 ( 9)1/2 = 300
For 10 = 100x ( 10)1/2 =316
Ans 2: Going by the example from Ans 1, we see that for an initial safety stock of 100, the values of safety stock for various locations are
For 4 locations, it is SSi x (4)1/2 = 2x SSi = 2000
We get that SSi =1000
For 8 locations, it is SSi x( 8)1/2 = 1000x 2.82 = 2820
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