REV COGS Holding Profit FillRate Centralized 36840 18420 12126 6294 98 Decentralized 36040 18020 11658 6362 96 Centralized 36160 18080 12138 5942 98 Decentralized 35460 17730 11680.5 6049.5 96 Centralized 36620 1831012178.5 6131.5 98 Decentralized 35780 17890 11725.5 6164.5 96 Question: 1.Why centralized system can reduce safety stock Centralizing inventory reduces both safety stock and average inventory in the system.Intuitively this is explained as follows.In a centralized distribution system, whenever demand from one market area is higher than average while demand in another market area is lower than average,items in the warehouse that were originally allocated for one market can be reallocated to the other.The process of reallocating inventory is not possible in a decentralized distribution system where different warehouses serve different markets. 2.Which kind of system is preferred when customer demand is easy to forecast? Which kind of system is preferred when customer demand varies strongly and is hard to forecast? When customer is easy to forecast,decentralized systems is preferred. The higher the coefficient of variation,the greater the benefit obtained from centralized systems;that is,the greater the benefit from risk pooling.Since reduction in average inventory is achieved mainly through a reduction in safety stock,the higher the coefficient of variation,the larger the impact of safety stock on inventory reduction. The benefits from risk pooling depend on the behavior of demand from one market relative to demand from another.We say that demand from two markets is positively correlated if it is very likely that whenever demand from one market is greater than average,demand from the other market is also greater than average.Similarly,when demand from one market is smaller than average,so is demand from the other.Intuitively,the benefit from risk pooling decreases as the correlation between demand from the two markets becomes more positive. 3.Using the answers to question 2,consider the following question: In reality,what kind of goods can be supplied through a centralized system? What kind of goods can be supplied through a decentralized system?Please place some examples. Digital cameras,computers,mobile phones can be supplied through a centralized system.Other refrigerators,ovens,some house necessary products can be supplied through a decentralized system. 4.In this experiment,we simulated a system who transformed two warehouses inQuestion: 1. Why centralized system can reduce safety stock Centralizing inventory reduces both safety stock and average inventory in the system. Intuitively this is explained as follows. In a centralized distribution system, whenever demand from one market area is higher than average while demand in another market area is lower than average, items in the warehouse that were originally allocated for one market can be reallocated to the other. The process of reallocating inventory is not possible in a decentralized distribution system where different warehouses serve different markets. 2. Which kind of system is preferred when customer demand is easy to forecast? Which kind of system is preferred when customer demand varies strongly and is hard to forecast? When customer is easy to forecast, decentralized systems is preferred. The higher the coefficient of variation, the greater the benefit obtained from centralized systems; that is, the greater the benefit from risk pooling. Since reduction in average inventory is achieved mainly through a reduction in safety stock, the higher the coefficient of variation, the larger the impact of safety stock on inventory reduction. The benefits from risk pooling depend on the behavior of demand from one market relative to demand from another. We say that demand from two markets is positively correlated if it is very likely that whenever demand from one market is greater than average, demand from the other market is also greater than average. Similarly, when demand from one market is smaller than average, so is demand from the other. Intuitively, the benefit from risk pooling decreases as the correlation between demand from the two markets becomes more positive. 3. Using the answers to question 2, consider the following question: In reality, what kind of goods can be supplied through a centralized system? What kind of goods can be supplied through a decentralized system? Please place some examples. Digital cameras, computers, mobile phones can be supplied through a centralized system. Other refrigerators, ovens, some house necessary products can be supplied through a decentralized system. 4. In this experiment, we simulated a system who transformed two warehouses in