Question

Suppose a retailer Mojo, holds safety stock for an item to accommodate a 98% service level with uncertain demand. There are two supply options: Supplier X taking 5 days to deliver replenishments, and Supplier Y taking 3 days to replenish. Both suppliers charge the same price for the item. Ignoring differences in fixed order costs, the retailer should choose:

a. Option X only if the critical ratio is greater than 0.9
b.Supplier X
c.Supplier Y
d.Option Y only if the critical ratio is less than 0.9

Answer 1

The retailer should choose Supplier Y because it has a faster replenishment time and can achieve the 98% service level more effectively.

Step-by-step explanation:

The retailer should choose Supplier Y because it has a faster replenishment time of 3 days compared to Supplier X which takes 5 days to deliver replenishments. The service level of 98% can be achieved more effectively with Supplier Y due to the shorter replenishment time.

The critical ratio is not mentioned in the question, so we cannot determine whether it is greater or less than 0.9. Therefore, options a and d cannot be chosen.

Therefore, Supplier Y is the best choice for the retailer.