You have been tasked to manage the inventory at your company. Your boss thinks that inventory management is out of control, but is not sure and wants you to perform some analysis of the inventory and provide him with some data. This chart lists your current stock, annual volumes, and unit cost.
Stock, Volume and Unit Cost
Item Stock Number Annual Volume Unit Cost
13595 9500 $5
32514 9000 $15
22010 3800 $650
14851 2400 $330
15242 1800 $500
10252 100 $3,500
16325 950 $900
12564 500 $190
13584 450 $200
12547 190 $220
STEP 1: CONDUCT AN ABC ANALYSIS
Use Excel OM and the chart to conduct an ABC analysis to determine which category each of the parts falls into. Provide analysis and interpretation of the results.
In the Excel OM software, the default Percent of dollar volume for A items is 75%, however, it has been determined by your boss that he would like to see the data for the A items set at 80%.
Click on Step 2 to continue . . .
STEP 2: CALCULATE EOQ AND REORDER POINT
Use Excel OM to calculate the EOQ and the reorder point for part number 32514 (check reorder point and graph when setting up the software).
The lead time to reorder parts is 30 days. The set up/ordering cost is $1,000 per order, and the holding cost is fixed at $125 per month (hint: be careful here). The factory runs 365 days per year, and the company wants to maintain a safety stock of 50.
Provide analysis and interpretation of the results.
Click on Step 3 to continue . . .
STEP 3: CALCULATE SAFETY STOCK
In Step 2, you were given the safety stock of 50; however, this can be calculated for a more accurate number. Assume that the average daily demand for part number 32514 is 30 with a standard deviation of 2 parts per day. If the company wants to make sure that they do not stockout more than 5% of the time, then what level of safety stock should they hold?
As part of your analysis of these results, how does the safety stock calculated here compare to the safety stock requirement in step 2?
To calculate the safety stock, use Excel OM and the Safety Stock (Normal Distribution) spreadsheet. Input your data into column H of the model titled Model: Daily Demand and its standard deviation given.
Click on Step 4 to continue . . .
Be sure to create only one spreadsheet – each activity should be on a separate tab.
Do not forget to add a detailed analysis for each of your problems. Your analysis should be inserted on each spreadsheet.