Problem Set: Inventory Aggregation
Consider the information and data presented in the scanned document “Managing Uncertainty in a Supply Chain:
Safety Inventory” case study “Should Packing Be Postponed to the DC [Distribution Center]?” (Page 353 – 354 in
the scanned document), that concerns inventory management at Penang Electronics, where orders are placed
weekly, and the lead time for receiving orders is 9 weeks. Pay close attention to the details of the case study,
but ignore the list of questions posed on Page 354.
For this assignment, do the following:
Compare the two alternatives under consideration for final labeling and packaging:
1. At the production faculty in Malaysia before being shipped to the DC (the current approach) and
2. At the DC in St. Louis (i.e., postponing labeling and packaging until just before shipment).
The comparison should consider the savings in annual holding cost with aggregation compared to the increased
production costs of aggregation. When determining if aggregation is warranted, note that how inventory is
managed does not need to be consistent across the three products (computers, printers, scanners). That is,
aggregation may be worthwhile for only one or two of the three products, and this approach can be
implemented.
When analyzing the two alternatives, use a target product fill rate of 99%. Assume that the demand across the
four customers is independent but that demand variation is perfectly correlated across weeks.
The assessment of this work will be based on the accuracy and clarity of your spreadsheet
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