Question

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LM.53 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.
The OEM has signed up 6 power companies on this rapid replenishment program. On average, each of these power companies used to hold 30 transformers in their safety stock. In total, how many transformers would these companies hold? (Display your answer as a whole number.)
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? (Display your answer as a whole number.)
After making this change for these power companies and OEM, by how many units (transformers) will inventory go down? (Display your answer as a whole number.)
By what percentage would their inventory decrease by consolidating their inventory from the dealerships into the warehouse? (Write your answer as a percentage and display your answer to the nearest whole number.)
%

Answer 1

The power companies used to hold 180 transformers, the OEM will also need to hold 180 transformers, the inventory will not go down, and the percentage decrease in inventory is 0%.

Step-by-step explanation:

To find the total number of transformers the power companies used to hold, we multiply the average number of transformers held by each power company (30) by the number of power companies (6). This gives us 30 * 6 = 180 transformers.

To maintain the same service level after the transition, the OEM would need to hold the same number of transformers that the power companies used to hold. So, the OEM would need to hold 180 transformers.

The inventory will go down by the difference between the number of transformers the power companies used to hold and the number of transformers the OEM will hold in the FedEx warehouse. This is 180 - 180 = 0 transformers.

The percentage decrease in inventory is calculated by dividing the decrease in inventory (0 transformers) by the initial inventory (180 transformers) and then multiplying by 100. So, the percentage decrease in inventory is 0/180 * 100 = 0%.