Problem:

I-mart manufactures cellular phones at its Seattle facility. The demand for phones at the Chicago DC averages 17,600 per month with a standard deviation of 5,500. The fixed cost of transportation and ordering is $100,000. Each phone costs $100, and I-mart has an annual holding cost of 25%. Delivery lead-time from the Seattle factory is 2 months.

Required:

Question 1) If I-mart desires a cycle service level (frequency of no stock-out) of 95%, how much safety stock should the Chicago DC carry?

Question 2) If they use an optimal order quantity approach, what is the resulting inventory policy?

Question 3) I-mart is considering sending the phones by airfreight instead of sending them by ground. Airfreight will cost an extra $5 per phone but will reduce the delivery lead-time to 0.5 month. Identify the tradeoff that I-mart must consider when deciding whether to go with the airfreight option. What would you recommend? Why? Quantify the costs and benefits of the change.

Provide thorough explanation of the given question.