Garret Carpet Inc. desires to increase its warehouses from 3 to 5 in their market areas, and the manager wants to know the impact this will have on their system inventories. Their current average inventory level is approximately 2,000 units at each of the 3 warehouses.
-Use the square root rule to calculate the new inventory level needed to maintain the same level of stockouts.

Question

Quizplus · Accepted Answer

The square root rule states that the new inventory level is the old inventory level multiplied by the square root of the new number of warehouses divided by the old number of warehouses. So, 2,000 * sqrt(5/3) ≈ 7,746.