Question

In an effort to reduce costs, many regional power companies want to lower their safety stock of electricity transformers. To support this desire, a large transformer OEM will store safety stock of transformers in a FedEx warehouse in Memphis, Tennessee in order to insure quick air delivery to any of these is power companies should the need arise. This collaboration will result in lower overall inventory across the supply chain, making it possible for all parties to lower their costs.
1. The OEM has signed up 14 power companies on this rapid replenishment program. On average, each of these power companies used to hold 38 transformers in their safety stock. In total, how many transformers would these companies hold?
2. To maintain the same service level after this transition, how many units (transformers) would the OEM need to hold (or pool) in the FedEx warehouse?
3. After making this change for these power companies and OEM, by how many units (transformers) will inventory go down?
4. By what percentage would their inventory decrease by consolidating their inventory from the dealerships into the warehouse?

Answer 1

Answer:

1. Total transformers held by power companies = 532

2. The total units of transformers that OEM needs to hold in the FedEx warehouse = 38

3. The inventory of transformers will go down by 494.

4. The percentage of the decrease = 93%.

Explanation:

Power companies signed up on the rapid replenishment program = 14

Average number of transformers held in safety stock by each power company = 38

Total number of transformers in safety stock = 532 (14 * 38)

Number of transformers needed in the FedEx warehouse = 38

Inventory will go down by 494 (532 - 38)

Percentage of inventory decrease = 93% (494/532 * 100)