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.
-Using the same information, if Garett's instead preferred to go with 2 centrally located warehouses, how would this impact system inventories?

Question

Quizplus · Accepted Answer

The square root law of inventory states that the total inventory in a system is proportional to the square root of the number of locations. With 3 warehouses, the total inventory is 6,000 units (3 warehouses x 2,000 units each). If reduced to 2 warehouses, the new inventory level is calculated as: 6,000 * (sqrt(2)/sqrt(3)) = 4,899 units.