Alexander and Thurston, Inc. is a mail sorting equipment company providing high quality service to their customers. The increasing pressure to live up to the service contracts let company start to rethink about their current inventory control strategy from both their distribution center (DC) and facility. The challenge of this company is to reduce their inventory level while maintaining the high fill rate and further improving their service level. The objectives of this report are to diagnose their current inventory control strategy on DC, facility and site, analyze their improved new policy and propose a better strategy to inventory management and allocation. Poisson distribution is implemented to describe the demand assumption. The three main indexes we use to evaluate a strategy are fill rate, total inventory cost and expected downtime. Based on our analysis, the current old policy maintains the fill rate of DC at about 97%. However, total inventory in DC is $30658.5, which is very costly. Meanwhile the total expected downtime for all 219 parts is about 1000days, which is about 5days per part. Compared with the old one, new policy improves the fill rate by 2% and decreases the inventory cost of DC to $24079. The expected downtime is reduced by 70%, which is about 304 days and 1.388 days per parts. To further reduce the inventory cost and improve the expected downtime. A proposed strategy is formulated based on the following table1.
Table 1: Proposed Policy for Inventory Control
| Usage Class| Reorder Point (ROP)| Max. Inventory Level (MIL)| Site| u=0| -1| 0|
| u>0| 1*(u*LT) / 365| 1.3 * (u*LT) / 365|
Facility| u=0| 0| 1|
| u>0| 1.1* (u*LT) / 365| 1.3 * (u*LT) / 365|
DC| u=0| -1| 0|