A company is considering two options for supplying a product to three markets, Markets 1, 2, and 3, with uncertain demands. The demand in each of the three markets can be either 50 units (high demand) or 10 units (low demand). The probabilities for Market 1 to have high and low demands are equal to 0.5 and 0.5, respectively. The probabilities for Market 2 to have high and low demands are equal to 0.6 and 0.4, respectively. The probabilities for Market 3 to have high and low demands are equal to 0.25 and 0.75, respectively. With the first supply option, the company will use three local warehouses, one to supply each market (the decentralized strategy). Each local warehouse will keep 28 units of inventory. (Therefore, the total inventory under the first supply option is equal to 84 units.) With the second supply option, the company will use a central warehouse to supply the three markets (the centralized strategy). The central warehouse will keep 84 units of inventory (so that the two supply options have the same total inventory level of 84 units). Also assume that the demands in the three markets are totally independent. Calculate the average service levels for the two different supply options. Please provide your original answer, do not copy and paste.
A company is considering two options for supplying a product to three markets, Markets 1, 2, and 3, with uncertain demands. The demand in each of the three markets can be either 50 units (high demand) or 10 units (low demand).
The probabilities for Market 1 to have high and low demands are equal to 0.5 and 0.5, respectively. The probabilities for Market 2 to have high and low demands are equal to 0.6 and 0.4, respectively. The probabilities for Market 3 to have high and low demands are equal to 0.25 and 0.75, respectively.
With the first supply option, the company will use three local warehouses, one to supply each market (the decentralized strategy). Each local warehouse will keep 28 units of inventory. (Therefore, the total inventory under the first supply option is equal to 84 units.)
With the second supply option, the company will use a central warehouse to supply the three markets (the centralized strategy). The central warehouse will keep 84 units of inventory (so that the two supply options have the same total inventory level of 84 units). Also assume that the demands in the three markets are totally independent.
Calculate the average service levels for the two different supply options.
Please provide your original answer, do not copy and paste.
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