Problem 1
Old supplier:
𝑄 ∗ = √2𝐷𝑆/𝐻
𝐷 𝑄∗
𝑇𝐶 = 𝐷. 𝑃 + 𝑆 + 𝐻
𝑄∗ 2
D=5000 units
H=3.6*0.25=$1.6
S=$25
2 ∗ 5000 ∗ 25 √250000
𝑄∗ = √ 1.6 = ≈ 395
1.6
5000 395
𝑇𝐶 = 5000 × 3.6 + × 25 + × 1.6 = $32,632.46
395 2
New supplier:
H=0.25*3=$1.5
5000 3000
𝑇𝐶 = 5000 × 3 + × 25 + ∗ 1.5 = $32,291.67
3000 2
→ Since the total cost of the new suppliers is less than the old supplier, the company should
accept the offer of the new supplier.
Problem 2
T=200 days
H= $3 per pound
S= $16
Daily demand = 75 pound
Std of daily demand = 15
Annual demand = 75 × 200 = 15000
1)
2𝐷𝑆 16
𝑄∗ = √ = √2 × 15000 × = 400
𝐻 3
2)
𝑄∗ 400
𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 = 𝐻= × 3 = $600
2 2
3)
𝐷 15000
𝑂𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 = ∗
𝑆= × 16 = $600
𝑄 400
4)
For 1% risk we have:
Z=2.33
So,
𝑅𝑂𝑃 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑎𝑖𝑙𝑦 𝑑𝑒𝑚𝑎𝑛𝑑 × 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟 𝑑𝑎𝑦𝑠 + 𝑍𝜎𝑑 √𝐿 = 75 × 4 + 2.33 × 15 × √4
= 369.9
5)
𝑆𝑆 = 𝑍𝜎𝑑 √𝐿 = 2.3 × 15 × √4 = 69.9
6)
𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑆 = 𝑆𝑆 × 𝐻 = 69.9 × 3 = $209.7
7)
For 2% risk, the Z value would decrease, and since the SS depends on the Z value, it will also
decrease, which also means that the SS holding cost would decrease.
Case Study
1. How does Wheeled Coach implement ABC analysis?
Wheeled Coach utilizes ABC analysis to prioritize inventory management based on the importance
and value of items. High-value A items, such as aluminum and chassis, receive the most attention,
with secure storage and carefully planned ordering schedules to ensure availability while avoiding
overstock. Regular cycle counting is performed to maintain accurate inventory records for these
critical items.
2. What additional policies and techniques would you introduce as the inventory control
manager at Wheeled Coach?
As the inventory control manager, I would recommend the following enhancements to improve
inventory accuracy and efficiency:
- Advanced inventory software: Introduce real-time tracking systems to optimize stock monitoring
and automate the ordering process.
- Improved cycle counting: Conduct more frequent counts for A items and periodic checks for B and
C items to reduce errors.
- Supplier partnerships: Establish closer collaboration with suppliers to shorten lead times and
refine demand forecasting.
- Automated notifications: Set up reorder alerts to prevent stock shortages or excessive inventory.
- Employee training: Provide training on inventory management best practices and emphasize the
importance of maintaining accurate records.
3. How would you implement these proposed improvements?
To implement these suggestions, I would adopt a structured, step-by-step approach:
- Phase 1: Assess and Plan
- Conduct a comprehensive review of current inventory practices to identify weaknesses in
processes, technology, and staff training.
- Phase 2: Integrate Technology
- Research and deploy advanced inventory management software tailored to track A, B, and C
items effectively.
- Phase 3: Train and Implement
- Train staff on the new software and inventory control techniques.
- Gradually introduce enhanced cycle counting and automated reorder alerts.
- Phase 4: Monitor and Improve
- Continuously evaluate system performance and adjust policies as necessary.
- Work with suppliers to achieve sustained improvements in inventory management.
