Subject: Parts Emporium
Wholesale distributor, Parts Emporium have experienced on the business growing path challenge from supply chain management side. Company is specialized in the distribution of auto parts and playing key role in that segment as largest and fully independent supplier in north central region of US. To implement optimal solution company have decided to hire Sue McCaskey as Material Manager. First day at work Sue is trying to focus her activity on two products. She believes, that optimizing supply chain for them will convince other team members on the new approach toward distribution of Parts Emporium goods. EOQ as base for orders
Focusing on two of products, exhaust gaskets and drive belts with EG151 and DB032 symbols respectively McCaskey looking for well known for her solutions. Oppositely to “perfect world” situation she has learned from the study, where all data are available, confirmed and structural way, in Parts Emporium not all info is available immediately. Inventory is out of control, as 60 days of part are on stock but customer service still struggle to deliver on time. Exhaust Gaskets
Simple way of Economic Order Quantity analyzes for above-mentioned components give already preliminary answer. Gaskets are ordered with 150 pc lot size what generate annual ordering cost of 707$ and holding cost of 139$.Total 846 USD annual inventory cost of the item. Implementing orders policy according to EOQ that the total cost may drop 626 USD, 26% saving only for that one item present interesting alternative. Drive belts
Drive belts product EOQ analyze present as follow: current total inventory cost is 512 (1000 as lot size) with 27$ ordering cost and 485$holding cost. That total can be cut to 229 USD with 236 pc as lot size, even if ordering cost will grow to 115$, holding cost will drop from 485$ to 114$. 55% saving on drive belts that the option to go for by EOQ implementation. For Sue McCaskey that two items are just examples how company may handle inventory for extensive product line. 1000 square feet new warehouse can be manage in much more effective way where ordering and holding cost optimization will drive whole company to better performance of customer satisfaction and more flexible reaction to market needs. Material Management as a new position on Parts Emporium may quickly gain importance and respect in eyes of team members and two owners, Dan Block, and Ed Springgs. As they have understood already importance of supply chain management with decision to hire a dedicated person now, they can recognize what potential for company development it represents.
Step 1: Identify the problem(s) and uncertainties.
What exactly is the problem…
Inventory management is out of control even with relocation of company and new 100 000 square feet warehouse introduction
The problem is this …
Although 60 days average inventory is on hand company experience parts in delivery backlog and is not able to deliver competitive customer service.
This is an important problem because…
Parts Emporium is distribution company and optimizing supply chain and build effective connection between parts suppliers and final customers should be the key.
The key question(s) that needs to be answered to solve this problem is… What are total inventory cost for selected items? Whether that cost can be improved or not? Is policy of EOQ possible to introduce in the company?
Step 2: Obtain information.
The following information is needed to answer this question… Specific items detailed info needed: lot sizes, demand, order cost, unit holding cost.
Some important assumptions I am using in my thinking are…
I am assuming that selected two products, gaskets and drive belts represent overall situation also on other products.
The points of view relevant to this problem belong to…
Mainly two owners Dan Block and Ed Spriggs, but also other company employees and...
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